3 Important COBRA questions — and answers
March 6, 2009 by Kerry IsbergPosted in: COBRA, Employment law, In this week's e-newsletter, Latest News & Views, Money, Records documentation, Terminations, policies
The Obama Administration’s COBRA subsidy program may be new, but there’s been plenty enough time (and few enough details released) to confuse employers. Here are three major questions employers have had, and the answers.
1. “If I pay the 65% premium subsidy for an ex-employee, how long will I have to wait to recoup that money?”
First of all, you will have to front the money for the premium payment, but only after the employee pays his or her 35% share. The amount employers put out is fully refundable – and, for many employers, in a matter of days.
After your company pays the 65%, it can either:
A. Take a credit on its very next federal income tax deposit. You don’t have to wait until the end of the quarter to file your Form 941. Whenever the tax deposit is due, Payroll can reduce the deposit amount by the subsidy.
B. Claim the subsidy as an overpayment on the Form 941.
2. “Is this going to make Form 941 more complicated?”
By now, you’ve probably seen the new Form 941 and its instructions. Employers will only have to fill in entries on Lines 12a (to claim the credit) and 12b (the number of people given the COBRA premium assistance) – and if there’s no subsidy paid, the amounts entered will be zero. There’s no additional info relating to this subsidy that needs to be reported on the 941.
Your recordkeeping burden will be a bit more involved. Employers claiming the credit must maintain supporting documentation for the credit claimed, such as details about:
- which former employees paid the 35%, how much the payment was, when it was made, etc.
- proof of timely payment of the full premium payment to the insurance carrier, and
- Social Security Numbers of all covered employees and the amount of the subsidy reimbursement for each.
3. “Is the tax credit considered taxable income, and will anyone have to jump through more hoops to report the income?”
There is no taxable income, because the subsidy shouldn’t be included in gross income.
You, however, may want to alert former high-earning employees who receive the subsidy that their tax liability may be affected. The subsidy starts phasing out for those with a modified adjusted gross income exceeding $125,000 ($250,000 for those who are married and filing joint returns). For those whose modified adjusted gross income is between $125,000 and $145,000 ($250,000 to $290,000 for married couples filing joint returns), tax liability increases so they end up repaying a portion of the subsidy,
Taxpayers with a modified adjusted gross income exceeding $145,000/$290.000 will have to repay the entire subsidy, in the form of additional tax on their personal income tax returns next year.
Tags: COBRA, Form 941, income tax, obama, social security
March 9th, 2009 at 11:45 am
Is there a template that employers can use for this new COBRA Stimulous?
March 9th, 2009 at 11:53 am
If the employer is self insured can they still take credit for their 65% of the COBRA rate?
March 9th, 2009 at 12:02 pm
I have an employee that is already on cobra for dental. Does the 65% apply to dental alone and when would we start paying the 65%?
March 9th, 2009 at 12:19 pm
Connie – yes.
March 9th, 2009 at 12:33 pm
Susan – yes, he will get the 65% reduction for dental only. Probably effective for 3/1/09, but you will have up to 2 months to get the notices sent out/billing corrected and would have to give him any credit due by May 09.
Carol – the gov’t is supposed to have a templete by 3/17 (I think that’s the date they’ve given).
March 9th, 2009 at 1:00 pm
It was my understanding this would only be for Medical cobra not dental?
March 9th, 2009 at 1:25 pm
The biggest question on my mind is what is defined by “gross misconduct”? We shouldn’t be offering this COBRA back to someone we terminated for violating policy. When can we expect clarification on this?
March 9th, 2009 at 1:29 pm
I believe there is a 4th question, which needs to be answered: In defining eligibility is involuntary other than misconduct. Does this include individuals who are terminated for poor performance. does this definition require an adminisrative adjudication process for employee’s who disagree with the employer’s reason for seperation?
March 9th, 2009 at 2:58 pm
When will templates be available to follow on the how to handles the COBRA changes. I have employees that were laid-off on March 6, should I bill them for the 102 percent a since we still don’t have a clear direction of how to proceed? The other question is do we bill the employee for 35% or 37%? I appreciate your help. My e-mail is mcoelho@fallriverma.org
March 9th, 2009 at 3:32 pm
Hi James: We were originally informed that it was only for health insurance, however, on March 9th, new information came stating that it will cover all insurance, including health, dental, vision, counseling, etc. except it will not cover Flexible Spending Accounts. We were also informed that the subsidy does not apply to workers who were placed on part-time status, who lost their insurance elibigility. Part-time workers will still have to pay the entire premium, they will not receive any subsidy.
March 9th, 2009 at 3:57 pm
Madeline – you bill them for 35% of 102% of the premium (100% of premium plus 2%). Templates are supposed to be available around 3/17. You have xx (30?) days to send out the notices, the Cobra eligible participanats have 60 days to elect.
Richard – I would define term’ed due to poor performance as involutary and therefore eligible.
Here is a FAC sheet from our Broker: http://www.silbs.com/Docs/COBRASubsidyQ&A_2.18.09.pdf
March 10th, 2009 at 7:59 am
If I am understanding this correctly, the employer can actually state on the 941 the dollar amount of the tax credit due as a refund and receive the refund from the IRS? Also, Schedule B would be the same as always which states the actual liability for any given day, week or month. Is this your understanding?
March 10th, 2009 at 9:08 am
Are you saying even companies that are self insured and do not sponsor the dental/vision plan but offer it as a voluntary product to their employees would still need to reduce the premiums to those employees? but how would the credit work then as we pay the carrier who is a fully insured plan different from our medical plan? how do we report that?
March 10th, 2009 at 9:39 am
If an employer paid COBRA premiums for 6 months for a former employee as part of a severance package, is the employer eligible for reimbursement, and how will those months that were paid by the employer affect the duration of the subsidy available to the former employee?
March 10th, 2009 at 9:48 am
Mary B – when ee’s leave and they had medical and dental coverage, don’t you offer them cobra at some sort of rate for both? That is the premium amount that the subsidy is calculated off of. My firm is self insured for health and dental and our broker worked w/our insur. company to calculate the number we charge for Cobra.
Joan – if the emplr paid the cobra premiums for the first 6 months, then no one gets the subsidy. when the ee picks up the 7th month then he gets the subsidy.
March 10th, 2009 at 10:02 am
But we are not self insured for the dental part…only medical…dental is totally voluntary to take by by it self for the employee…and I do offer them Cobra which they can elect to take as a separate part of their coverage…so are you saying I need to get with my broker and have her ask the fully insured carrier what we should charge and they would take the credit on the Cobra dental for the next 9 months or as it pretains to each individual?
March 10th, 2009 at 10:50 am
Mary – if you’re fully insured for dental, then you have a monthly rate on your invoice, right? Don’t you currently offer those who had dental coverage that same rate plus 2% – right? that number is what you calculate x 65% to get the subsidy amount.
March 10th, 2009 at 10:56 am
Employees who resign are eligible for COBRA. Does the stimulus subsidy only apply to people who leave a job due to lay-off due to poor economic conditions or people who must resign due to health reasons? It seems like the intent, but really if the employer is on the hook for 65% of all COBRA premiums—it could be huge!!!
March 10th, 2009 at 1:03 pm
What if the company you were working for goes out of business? Is my cobra still effective at my 35% rate.
March 10th, 2009 at 1:13 pm
Hello
March 10th, 2009 at 1:17 pm
Gin – when you are on Cobra, you are still on your old employer’s health plan(s). If they go under, they have no more health coverage for current or past employees – in other words, you’ll be SOL, no coverage at all. Sad but true.
March 10th, 2009 at 1:42 pm
Marilyn, I was hoping that wouldn’t be the case. But thanks for the confirmation…….. I will keep my ifngers crossed.
March 10th, 2009 at 1:57 pm
Interesting questions, and thanks for your answers as well. There is NO subsidy for FSA’s, individuals who leave the company on their own (resign), and ee’s that worked for companies that went banrupt. Ee’s involuntarily terminated 9/1/08 or later and DID NOT elect COBRA get another chance to elect COBRA with the subsidy (35%). Companies don’t “take a hit” with paying the 65% of the COBRA premium, because they will deduct it each quarter on the tax form 941. This subsidy lasts ONLY 9 months. If ee DID elect COBRA, and has kept up regular payments, monthly payments will change to 35% (for nine months only), and go back to the 102% rate until their 18 months of COBRA are finished or ee cancels his/her enrollment. HRAs are eligible for COBRA, but there are no clear guidelines so far on how that will be dealt with. As I understand it “gross misconduct” should be applied to serious cases such a swindling co. money.
March 10th, 2009 at 2:00 pm
When notifying terminated employees of “Cobra Notice” …. can we regular mail or do you recommend certified mail?
March 12th, 2009 at 7:46 am
I have read that one of the criteria for qualifying for the COBRA subsidy is that the former employee does not have access to other coverage, i.e. Medicare or a spouse’s group plan. I am wondering if the “Cobra Notice” should be sent to ALL involuntarily terminated employees (in the specified time period), even those just mentioned? I have some employees that are eligible for Medicare as well as some that have actually notified me that they are being covered on their spouse’s plan.
March 12th, 2009 at 8:39 am
good question, Betty. I would notify all. It’s on them if they take it and don’t qualify – the penalty they will pay is 110% of the subsidy. I think it’d be obvious to the government those that qualify for Medicare, how they’ll nab the ones who could take coverage under a spouse plan I can’t imagine.
March 18th, 2009 at 4:15 pm
Betty, The informatuion I received said yes we need to send cobra notice to all involunatarily terminated employees. They read the notice and if they have other coverage, they will know they aren’t elegible. If they don’t read the notice, when they contact you, you will have to ask if they have other coverage and tell them they are not eligible.
March 19th, 2009 at 8:02 am
http://www.dol.gov/ebsa/COBRA.html
The model notices are now posted at DOL.gov
April 6th, 2009 at 2:25 pm
I have a situation where as an employee is getting a divorce and his spouse is eligible for COBRA will she qualify for the stimulas rates? With all new reasons for termination I am not sure about this one…I seem to think not as it’s not relating to the employee himself but the dependent…
Appreicate you help with that question…
M
May 11th, 2009 at 1:51 pm
Since we have less that 20 full time employees, and we offer our departing employees COBRA, are we also eligible for the new government subsidy?
June 29th, 2009 at 12:04 pm
My company is folding and I will be out a job in a few weeks. Am I still eligible for Cobra? How does a company that has folded handle this?
June 29th, 2009 at 1:33 pm
Hi Natalie…sorry to hear that the company you are working for is folding. To my knowledge, since the company will no longer exist, it will not have any way to offer health insurance to its past employees who are already enrolled in COBRA coverage, or its present employees; therefore, COBRA will not be offered to anyone. I suggest you talk with your HR folks now to find out what your options are…what state health insurance is available, etc. I’d be interested in hearing about this from other folks reading this. Best of luck to you, Natalie!
October 26th, 2009 at 10:54 am
Jennifer: Can you please state your source for the information you posted? Thanks.
December 18th, 2009 at 2:11 pm
I am currently employed and will be laid off on 12/31/09. I have medical, dental,and vision. I just want to confirm will all of this insurance be covered under the COBRA subsidy?
December 18th, 2009 at 5:07 pm
Good news and bad news. If you are laid off December 31st, and your eligibility for benefits coverage would begin on January 1, 2010…then you WOULD NOT BE covered under the current subsidy, and would be paying at the 100%-102% level UNLESS Congress passes an extension. The current subsidy covers employees who are involuntarily terminated from September 1, 2008 THROUGH December 31, 2009…no exceptions. Benefits starting January 1, 2010, are not within that timeframe. The good news is IF Congress passes an extension, it could be for an additional 6 months at the same 35% or a new 25% employee monthly payment. Nothing has been carved in stone, so keep your ear to the ground and watch this carefully. Congress, I believe, starts their holiday vacation today, so there won’t be any news until they reconvene. To confirm all of this, please see their website: http://www.dol.gov/ebsa/faqs/faq-cobra-arra.html