January 4, 2010

Congress Considers Expanding Cobra Subsidy for Unemployed Workers

Congress Considers Expanding Cobra Subsidy for Unemployed Workers Tax & Business

During February 2009, President Obama signed The American Recovery and Reinvestment Act of 2009 (the “Act”) into law. One of the provisions within the Act provides for premium reductions and additional election opportunities for health benefits, most commonly known as COBRA. Under this Act, eligible individuals pay only 35 percent of their COBRA premiums and employers pay the remaining 65 percent. An eligible individual is someone whose employment was involuntarily terminated during the period beginning September 1, 2008 and ending December 31, 2009. The employer will then be reimbursed for its portion of the premiums via a tax credit through the quarterly payroll tax return filings.

Employers must keep proper documentation to support the claim, such as termination dates and proof of COBRA coverage for each eligible individual. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009. After the nine month period, eligible individuals will then be required to pay 100 percent of the COBRA premiums. At this time employers should notify these individuals in advance. COBRA coverage normally lasts up to 18 months, but can be extended to 29 or 36 months depending on an individual’s situation.

A recently introduced Senate Bill (S. 2730, proposed by Senators Brown and Casey) would extend the subsidy by six months and raise the percentage the employer pays to 75 percent. In addition, workers who lose their jobs through June 30, 2010, would be eligible as well. This proposed Bill is important to several groups of people:

  • Those who are already receiving the subsidy and will begin reaching the end of the nine month limit in December, 2009, and
  • Those who were terminated in December but were not eligible for COBRA coverage until 2010, and
  • Individuals involuntary terminated next year.

As the law is currently written, those individuals involuntarily terminated after December 2009, will not be entitled to any subsidy to offset COBRA premiums. This subject will be a major point of concern for employers who have terminated employees and those individuals who have become recently unemployed. This proposed Bill is expected to be decided by January 2010. (This law’s extension was not currently included within the Tax Extenders Act of 2009.)

As the laws change related to this topic, Marcum is committed to keeping its clients up to date on this topic.}

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