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 explained how state agencies should allocate the COBRA premium reduction credit. Often a single state agency may provide health care coverage to employees of several other state agencies and local government units. Generally, the credit is attributed to the agency or unit that was the former employer whose termination of the employee made the employee eligible for the subsidy. When a plan is subject to COBRA under the Public Health Services Act (PHSA) and the former employee is required to pay the thirty-five percent share directly to the agency that maintains the health plan, however, that agency may claim the credit as long as it has received notification that the former employee was involuntarily terminated and that the former employing agency will not claim the credit. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.