July 8, 2009

ARRA’s COBRA Subsidy: Further Guidance

On June 3, 2009, the IRS issued additional Q&As relating to the COBRA subsidy.     Following are hi-lights of these Q&As:

  • Involuntary termination determination 
    • A contract that is not renewed, such as for a teacher, is deemed to be an involuntary termination, as long as the individual is able and willing to continue working.
    • Elected officials.  An elected official who loses an election or cannot run due to a term limit, is deemed to be involuntarily terminated.  Elected officials who choose not to run again are not involuntarily terminated.
    • Appeals process. The DOL has indicated that it will give deference to the employer’s determination of whether a termination is voluntary or involuntary, as long as the determination is reasonable under the law, and the employer has adequate records to support its determination.
  • TRICARE - Effect on eligibility.  The guidance clarifies that eligibility or coverage under TRICARE will not affect the right to the COBRA subsidy.
  • Second election period.  If a COBRA subsidy eligible individual was not receiving COBRA as of 2/17/09, then the individual is entitled to a second election period.  The plan must allow the coverage to become effective as of the first period beginning on or after 2/17/09.  The COBRA continuee can choose to make the coverage effective at a later date; however, the 9-month maximum subsidy period is measured from the first COBRA period beginning on or after 2/17/09, without regard to when the coverage actually begins. 

In addition, the “no gap in coverage” for preexisting condition purposes, waived for subsidy eligible coverage that begins on or after 2/17/09, would not apply if the individual delays commencement of the subsidy.  In other words, preexisting condition and gap in coverage rules would apply to the period between the first coverage effective date following 2/17/09, and the date the person actually commences coverage.

  • Employer-paid premium 
    • If the employer pays a portion of the COBRA premium, then the subsidy would not be available on that portion.  This guidance clarifies that a premium payment from a health reimbursement account would be considered employer-paid and not COBRA subsidy eligible.
    • This guidance clarifies that the payroll tax credit is taken by the entity to whom the premium is paid;  the employer, in most cases; the insurer, in the situation of a plan subject to state continuation; and, a multi-employer plan in circumstances in which the individual was covered by a multi-employer plan.  If there are multiple entities as part of a control group, the entity responsible for paying the payroll taxes for the individual would be able to take the credit.
  • Reporting and disclosure 
    • This guidance clarifies that there is no obligation to report the COBRA subsidy on a Form W-2, a Form 1099, or any similar form. 
    • The Form used to correct the Form 941 has been updated to reflect the COBRA subsidy.  Specifically in Part 3 of the Form 941-X:
      • Line 17a requests the COBRA premium assistance payments, as reflected in Line 12a of the Form 941; and
      • Line 17b requests the number of individuals provided COBRA premium assistance, comparable to Line 12b of the Form 941.  It should be noted that only one person should be reported per family unit.

Prior Benefit Beat articles about the COBRA subsidy:


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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