Vision Payroll

March 5, 2010

Question of the Week: Has the COBRA Premium Subsidy Been Extended

This week’s question comes from Dawn, an HR manager. We are terminating someone today. I thought the COBRA subsidy expired at the end of February. Now I hear that it’s been extended again. Has the COBRA premium subsidy been extended? Answer: On Tuesday, President Barack Obama signed into law, HR 4691 (PL 111-144), which extended the COBRA premium subsidy to include workers involuntarily terminated in March 2010. Benefits were also extended to certain workers who lost coverage due to a reduction of hours and then were involuntarily terminated. Furthermore, work continues on HR 4213, which would extend coverage to employees who are involuntarily terminated during 2010. Contact Vision Payroll if you need further information on the COBRA subsidy extension.

February 3, 2010

Tip of the Week: COBRA-ARRA Subsidy Extension and New Requirements

COBRA allows eligible individuals to continue employer-provided group health coverage for a specified period due to certain qualifying events, such as job loss. In February 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was enacted and provided a temporary 65% COBRA (or similar state continuation coverage) premium subsidy for eligible individuals. In December 2009, President Obama signed the Department of Defense Appropriations Act (2010 DOD Act or DDAA), which also amended ARRA.

The law extends the eligibility period, includes a retroactive subsidy extension, and imposes new notice requirements. The notice requirements are necessary so that all eligible employees know and understand the options that are available to them under the 2010 DOD Act. You can also get tax credits for individuals who may not have been previously eligible.

To learn more and get a list of action items that you can use right now, be sure to read the featured article by the HR pros at MyHRSupportCenter, COBRA-ARRA Subsidy Extension and New Requirements. If you’re not yet signed up or would like a free trial of MyHRSupportCenter, contact Vision Payroll today.

January 27, 2010

Tip of the Week: DOL Releases Updated COBRA Model Notices

The US Department of Labor (DOL) has released updated COBRA model notices to help employers meet the notification requirements created by the passage of the Department of Defense Appropriation Act, 2010 (2010 DOD Act). The notices are the Updated General Notice, the Premium Assistance Extension Notice, and the Updated Alternative Notice.

Plans subject to the Federal COBRA provisions must provide the Updated General Notice to all qualified beneficiaries (not just covered employees) who experienced a qualifying event at any time from September 1, 2008 through February 28, 2010, regardless of the type of qualifying event, and who have not yet been provided an election notice. This model notice includes updated information on the premium reduction as well as information required in a COBRA election notice.

Plan administrators must provide notice to certain individuals who have already been provided a COBRA election notice that did not include information regarding the American Recovery and Reinvestment Act of 2009 (ARRA), as amended. This model Premium Assistance Extension Notice includes information about the changes made to the premium reduction provisions of ARRA by the 2010 DOD Act. Listed below are the affected individuals and the associated timing requirements.

  • Individuals who were “assistance eligible individuals” as of October 31, 2009 (unless they are in a transition period – see below), and individuals who experienced a termination of employment on or after October 31, 2009 and lost health coverage (unless they were already provided a timely, Updated General Notice) must be provided notice of the changes made to the premium reduction provisions of ARRA by the 2010 DOD Act by February 17, 2010;
  • Individuals who are in a “transition period” must be provided this notice within 60 days of the first day of the transition period. An individual’s “transition period” is the period that begins immediately after the end of the maximum number of months (generally nine) of premium reduction available under ARRA prior to its amendment. An individual is in a transition period only if the premium reduction provisions would continue to apply due to the extension from nine to 15 months and they otherwise remain eligible for the premium reduction.

Insurance issuers that provide group health insurance coverage must send the Updated Alternative Notice to persons who became eligible for continuation coverage under a State law. Continuation coverage requirements vary among States and issuers should modify this model notice as necessary to conform it to the applicable State law. Issuers may also find the model Premium Assistance Extension Notice or the Updated General Notice appropriate for use in certain situations.

Vision Payroll recommends employers consult with their benefit broker, COBRA administrator, and labor law attorney to ensure compliance with the updated notice requirements.

July 12, 2009

IRS Provides Guidance on Information Reporting For COBRA Premium Subsidies

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 confirmed that employers, multiemployer plans, and insurers are not required to report on Form W-2 or Form 1099 any premium subsidies provided to Assistance Eligible Individuals (AEIs). They are requited to keep records and supporting documentation for any such payments to AEIs and to support any credit claimed on Form 941. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.

June 1, 2009

IRS Updates Form 941 Instructions for COBRA Premium Assistance Reporting

The Internal Revenue Service (IRS) has updated its instructions for Form 941, Employer’s QUARTERLY Federal Tax Return. Using the new guidance, employers are now instructed to report on line 12a “65% of the COBRA premiums for assistance eligible individuals” (AEIs). Previously, employers were instructed to report “COBRA assistance payments [they] made.” Also, the IRS clarified that when entering the number of AEIs provided COBRA premium assistance, reach AEI who paid a premium should count as one individual even if the premium was for a policy that covered more than one AEI. Contact Vision Payroll if you have any questions on the revised Form 941 reporting instructions.

April 6, 2009

Assistance Eligible Individual under Notice 2009-27

The Internal Revenue Service recently released an advance copy of 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 credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Assistance Eligible Individual (AEI) under Notice 2009-27.

In order to be an AEI, an individual’s job loss must result from an involuntary termination after August 31, 2008 and before January 1, 2010. It is irrelevant when the loss of coverage under the group plan happens, the involuntary termination must occur during that period. The individual must be eligible for continuation coverage at any point during that period and must elect COBRA continuation coverage. Therefore, an employee may be terminated during the eligibility period, but still not an AEI since the individual’s coverage doesn’t terminate until after December 31, 2009.

A qualified beneficiary is an individual covered under the group health plan on the day before the involuntary termination. There are exceptions in the case of children born to or adopted by covered employees during COBRA continuation coverage or in some situations where an individual was wrongfully denied continuation coverage.

If an employer provides health coverage to terminated employees on the same terms as it provides to active employees as part of severance benefits to terminated employees, the loss of coverage does not occur until the employer-provided coverage is no longer on those terms. If the employer considers the payment for the coverage for the employee “to be the provision of COBRA continuation coverage on behalf of the involuntarily terminated individual,” then the loss of coverage occurs the day before the provision of COBRA continuation coverage begins.

Assume an individual is involuntarily terminated on November 15, 2009 with normal coverage continued through the end of November. If six months health coverage is included as part of the severance benefits, the loss of coverage occurs May 31, 2010 and the individual cannot be an AEI. If the employer considers the payment to be payment of COBRA benefits on behalf of the employee, the loss of coverage occurs November 30, 2009, and the employee could become an AEI.

Similarly, under federal COBRA coverage, if there is no provision for an optional extension of required periods under §4980B(f)(8) of the Internal Revenue Code of 1986 (IRC), the loss of coverage is deemed to occur on November 15, 2009, the date of involuntary termination. An optional extension of required periods under IRC §4980B(f)(8) would result in loss of coverage being deemed to occur on May 31, 2010 (not May 31, 2009 as indicated in the answer to question 14 in Notice 2009-27).

Involuntary termination of an employee following another qualifying event generally does not qualify the qualified beneficiary from the first event to be an AEI. For example, if an employee is divorced after August 31, 2008 and before January 1, 2010 (a more inclusive period than indicated in Notice 2009-27) resulting in a loss of health coverage for the spouse and the spouse elect COBRA coverage, the later involuntary termination of the employed individual does not allow the spouse to be an AEI since the qualifying event was the divorce, not the involuntary termination.

An employer may offer continuation coverage on a voluntary basis that is not required under federal COBRA or similar state laws as defined in ARRA. An employee electing coverage under such a plan cannot be considered an AEI.

An individual may become an AEI more than once and is eligible for up to nine months of premium reduction for each involuntary termination.

The fact that an otherwise eligible individual does not elect COBRA coverage until after December 31, 2009, does not necessarily disqualify the individual from eligibility as an AEI, as long as the COBRA continuation coverage begins after August 31, 2008 and before January 1, 2010.

An employee’s death is not considered an involuntary termination and therefore a deceased employee cannot be an AEI.

The next topic covered will be Calculation of Premium Reduction. Contact Vision Payroll if you have any questions on Notice 2009-27.

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