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 clarified that when assistance eligible individuals (AEIs) pay their COBRA premiums on a pretax basis from a health reimbursement arrangement (HRA), the premiums are treated as paid by the employer, not the employee. Consequently, the AEIs are not considered to have paid their thirty-five percent share of the premium for purposes of calculating the allowable credit. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.