Employer Definition
Employers Face Changes in COBRA Qualifications
The 2009 American Recovery and Reinvestment Act (ARRA) contains a revision for COBRA-qualified health benefits that is mandatory for employer compliance.
ARRA creates a federal 65% subsidiary for COBRA insurance for individuals who involuntarily lost or will lose their jobs between September 1, 2008 and December 31, 2009.
So employers will need to make sure they comply with all the required notices to those employees who involuntarily left going back to September 1, 2008 through the remainder for 2009.
The mechanics of the subsidy are rather interesting. Employers will receive a credit on their payroll tax returns for the federal subsidy. As an example, if the subsidy is $100, the employer will get a credit of $100 on the employer’s form 941. Note that this is a credit, not a deduction. What’s the difference? A credit is a dollar-for-dollar reduction in your tax liability. A deduction is a watered-down credit most likely only worth 30 cents against a dollar of tax liability. As you can guess the government does not allow for very many credits.
Now for the devil in the details. If your business is not covered by COBRA (fewer than 20 employees at any time during a calendar year), you are still subject to complying with these notices to qualified employees. If you are subject to the state-mandated health version of COBRA, your qualified employees can use the federal subsidy. You would need to contact your insuance carrier, since they are now the responsible party for providing the subsidy and taking the payroll tax credit.
The COBRA subsidy program lasts untils December 31, 2009. If a participant’s COBRA rights expire, the subsidy also stops. Say a past employee finds employment and health insurance coverage with a new employer. The employee is responsible for notifying employers when this occurs. I’m sure that some will try and milk the system for all they can but when, not if, they are caught there will be financial penalties.
I earlier used the term “involuntarily terminated.” As with most government regulations the definition is not quite what us simple-minded folks think. Consult the Department of Labor website for the government’s definition.
There are some groups that we can say with authority do not fall under the “involuntarily terminated” definitions. Individuals who are terminated for gross misconduct, voluntarily retire or quit a job are ineligible.
If you are an employee reading this column you may not be eligible to use this credit if your adjusted gross income for 2009 is between $250,000 and $290,000 filing a married filing jointly status, or if filing single or head-of-household status with adjusted gross income between $125,000 and $145,000. Now would be a good time to check to see if you can claim this credit for 2009. Do not wait until 2010 to see if you qualify.
Employers must send notifications about the federal subsidy to individuals who elected COBRA coverage and are still paying for it, individuals who elected and dropped COBRA coverage, and individuals who never originally elected COBRA coverage. Employees who dropped coverage are eligible to re-enroll in COBRA.
Certain issues will require care in making these determinations about who does qualify for the subsidy. Domestic partner coverage is not COBRA coverage. The federal subsidy will not exist for domestic partner and civil union marriages.
Employers will be required to provide detailed reporting regarding employees receiving the federal subsidy.
The rules seem difficult and complex at first review, but your COBRA health provider and health insurance agent have ample ability to take control of these requirements and relieve your HR department of any unnecessary burden or risk for complying with these COBRA regulations.
Stanley Hargrave of Hargrave & Associates is a certified financial planner and specializes in financial management for business owners. He can be reached at stanley.hargrave@sbcglobal.net
For More information regarding COBRA & other Tax Credit please visit http://www.hargrave-lyons.com
About the Author
Stanley Hargrave is a partner at Hargrave & Associates,LLC, a wealth management firm located in Riverside,CA. He is a certified financial planner (CFP) and an adjunct faculty member with the University of California, Riverside and Depaul University. He holds a masters degree in financial planning-wealth management and has over 30 years of experience in his field.
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