The Internal Revenue Service (IRS) has released Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a payroll tax credit on their Form 941 to be reimbursed for the assistance provided.
In recently issued guidance, the IRS discussed individuals eligible for the extended federal (or FEHBP) COBRA election period. Such individuals must be offered coverage “effective with the first period of coverage beginning” after February 16, 2009. The employer or health plan may allow coverage to begin as of a later date. If the election to begin COBRA coverage as of a later date is made, the nine-month period for premium subsidy would still begin effective with the first period of coverage after February 16, 2009. Additionally, any period between the first period of coverage beginning after February 16, 2009 and the effective date of coverage “is not disregarded for purposes of the rules limiting preexisting condition exclusions.” Periods between the involuntary termination and the first period of coverage beginning after February 16, 2009 are disregarded for the preexisting condition exclusions. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.