May 4, 2010

IR-2010-052 COBRA Subsidy Eligibility Period Extended to May

Contributor Marla Esan, Director, Tax & Business

IR-2010-052 COBRA Subsidy Eligibility Period Extended to May Tax & Business

On April 15, 2010, the Continuing Extension Act of 2010 was enacted as an extension of the American Recovery and Reinvestment Act of 2009. The 2010 Act reinstates the COBRA subsidy benefits extended to those Americans who have involuntarily lost their job since September 1, 2008. The program, which originally expired March 31, 2010, was reinstated on April 15, 2010, and extended through May 31, 2010.

Eligible persons include:

  • Workers who were involuntarily terminated between September 1, 2008 and May 31, 2010,
  • Workers who became eligible for COBRA as a result of a reduction in hours between September 1, 2008 and May 31, 2010 and were subsequently terminated thereafter.

It is important to note that included above are those individuals who did not take the COBRA coverage immediately after a reduction in hours, and those who may have, but dropped it, are now eligible to have benefits reinstated for up to 18 months after the reduction in hours. Coverage under the COBRA subsidy ends after the earliest of:

  • fifteen months,
  • the end of COBRA coverage, or
  • upon becoming eligible for other group health or Medicare coverage.

Under the revised COBRA coverage, eligible individuals would pay 35 percent of their health coverage to their former employer. Employers will then be reimbursed for the remaining 65 percent of the insurance cost by claiming a credit on their respective payroll tax returns. It is important for employers to maintain detailed documentation to support the credit claimed.

Benefits under the COBRA premium subsidy are not includible in taxable income to the individual recipient who has a modified adjusted gross income of under $125,000, if filing single, or $250,000, if filing jointly. A phase out of subsidy eligibility occurs beyond that income threshold. The 65 percent subsidy is not taxable for Federal purposes, but may be taxable under certain state law.

In addition, those individuals who are eligible for the COBRA subsidy may also qualify for coverage under the Health Coverage Tax Credit (HCTC) and may want to utilize those benefits instead as it covers 80 percent of health insurance premiums. The two benefits are not able to be combined. Eligible persons for HCTC include:

  • Individuals who receive Trade Adjustment Assistance benefits, or
  • Individuals who receive pension payments from the Pension Benefit Guaranty Corporation, and are over the age of 55.

See more at HCTC: Eligibility Requirements and How to Receive the HCTC.

The following are the Payroll tax forms appropriate for employers to claim the credit, which may also be found on the IRS website:

  • Form 941 Employer’s Quarterly Federal Tax Return
  • Form 944 Employer’s Annual Federal Tax Return
  • Form 943 Employer’s Annual Federal Tax Return for Agricultural Employees

View additional information about COBRA at

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