New COBRA reporting required in 2009?
February 3, 2009 by Kerry IsbergPosted in: COBRA, Employment law, In this week's e-newsletter, Latest News & Views, Pay and benefits, policies
At the end of the first quarter, HR and Payroll may have a lot more to do than just remove terminated employees from the records. You may also have to use a new Form 941 to report some COBRA premium contributions made on behalf of former workers. In a January 29 teleconference, IRS officials revealed important new details of the Obama Administration’s plan to help unemployed workers keep their healthcare benefits. Here are some new details of the “tax credit” (See “Paying for COBRA: Obama’s plans for 2009“), which is expected to be finalized and signed by the President within a few weeks:
- Eligible employers will be required to pay 65% of the terminated worker’s premium – but only once a former employee forks over his or her 35% contribution. (Note that these regs apply to all employers subject to COBRA regs – those with 20 or more employees.)
- Payroll will complete the new Form 941, Employer’s Quarterly Federal Tax Return, which includes three new lines to report the COBRA premium payments made, the number of recipients receiving payments and a total line.
- IRS will refund amount of the overpayment (if any) listed on the Form 941 at the end of the quarter.
If this proposal ends up on President Obama’s desk as quickly as expected, the effective date will begin with first quarter 2009 reporting – even if an employer hasn’t made any COBRA premium contributions at that point. We’ll keep you posted.
February 9th, 2009 at 11:30 am
This idiot president and his band of henchmen are determined to destroy every business in America in order to put everyone on the government teat. Fight the Federal bully! Write your Congressional representatives and let them know your thoughts on this and other detrimental legislation. If you don’t, who will?
February 9th, 2009 at 11:31 am
Not very fair to employers who are struggling to stay afloat with low cashflow. So, those employers not only pay Federal taxes on a weekly basis, but also pay the 65% for each COBRA participant upfront, at the beginning of each month, — possibly putting a company in such a position that they simply can’t make it and have to close. That displaces the remaining employees and subsequently ends COBRA for all! Because, once the company no longer exists, there’s no money to pay the insurance carrier — insurance coverage ceases. Then I guess all of the displaced workers simply have to look to the government for assistance in health coverage since their former employer no longer exists. I would much report to the government on a Monthly basis indicating COBRA participants’ SSN & payment amount and let the government reimburse them individually. More work and expense for the government??!! Oh well, why should all of the burden be put on American companies when the government created this mess in the first place?!
February 9th, 2009 at 11:49 am
All of the burden isn’t being shifted to American companies— employees have to pay their share. Frankly, most will not be able to come up with 35% of the average cost of COBRA coverage for themselves, let alone their families. This is still alot of money for people who are mostly going to be unemployed.
Most small business do not provide health insurance for their employees. Those that do will be able to raise the prices of their goods and services to cover this expense. Make it work… Americans always have and always will.
A friend of mine’s brother has been unable to work due to serious medical problems for over a year. He could not afford COBRA on his meager unemployment so is without health care. Now he is at the final stages of his terminal disease and no doctor or hospital will care for him. Do you want this to happen to you? To your daughter or son? To your brother or sister? States will not cover these people on the state medical plan, they are almost bankrupt. Social security disability will not kick in for another 11 months. He will be dead by then. In the meantime, his stomach is distended because he has fluid build up but no one will care for him, not even the “religious” hospitals in the area. All they will do is give him a medical marijuana card for his pain.
I think President Obama is on the right track. We are one of the wealthiest countries in the world, yet we have many who cannot get or afford coverage. If the employer can help one of these people out, our world would be better for it.
February 9th, 2009 at 11:54 am
This is so very sad. Many more employers will stop covering employees if they are forced to fund termed employees as well. This will also put an unfair strain on business as they will have yet another cost (outsourcing COBRA since it will be unmanagable if this goes through) to have employee benefit coverage.
February 9th, 2009 at 12:22 pm
So will this extend to employees who voluntarily terminate, or only those who are laid off/fired?
February 9th, 2009 at 12:48 pm
Karen it is nice to dream but your thinking is very unrealistic. First, most employers that do cover employees under a group health plan do not pay 100% of the premium for their employees. A large number pay between 50% and 75% of the employee premium. Under this plan they will now be forced to pay equal to or more than they were paying for the COBRA employee when they were productive! It’s easy to say they can raise their prices but in competitive markets that does not work.
Second, not all employees who lose coverage do so involuntarily. There has to be some provision for those employees who choose to leave on their own or are terminated because they just don’t work out. That employee is going to have to be replaced and premium paid on them as well. I am somewhat agreeable to an arrangement for those employees who are part of a massive layoff but there still have to be some guidelines. COBRA runs for 18 months.
You mentioned people cannot afford to pay the premiums. People take their beneftis for granted and don’t realize what an expense an employer is taking on when providing health insuranc e for their employees.
February 9th, 2009 at 12:50 pm
Nicole – This proposal doesn’t change the COBRA eligibility requirements. For employees, qualifying events include:
* Voluntary or involuntary termination of employment for reasons other than gross misconduct, and
* Reduction in the number of hours of employment.
There’s a good summary at http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTML.
Hope this helps.
Kerry Fitzgerald, editor
February 9th, 2009 at 1:02 pm
A paid benefit to an employee who no longer does any work for you is what this is. Even to one who is fired for cause, quits to better, or laid off. I would support partial funding of COBRA for a worker who is laid off…not for one who quits or is fired. The answer to the health care crisis in this country should not be on the backs of employers, especially smaller ones.
Remember when we move from recession to depression, many of you voted for Obama.
February 9th, 2009 at 3:20 pm
I think President Obama should slow down, and understand the impact this will have on busineses. This may force businesses to close because they can’t afford to stay open. It will ultimately force companies to lower what they contribute paying toward employe benifits, and eventually lead to more employee layoffs.
President Obama better slow down, and stop being a one-sided President because sooner or later reallity will set in. He should start listening to the american people, and stop penalizing people because of their income just because they did well in life, most of them worked for it.
February 9th, 2009 at 4:30 pm
Well I just love all the you voted for him talk. What is your SOLUTION ???????
February 9th, 2009 at 4:32 pm
Try bringing down the Insurance Companies, the middlemen making all the money in health care. Employers & employees cannot afford the high costs involved. Let’s get talking seriouly about the real issue of health care and what it is not doing for our country. Why are we so blind to universal type care?
February 10th, 2009 at 8:37 am
I agree with Patty! I voted for Obama and I don’t think he is the bad guy- big insurance companies are and we need to deal with them. Health insurance is not longer a luxury- it is a necessity!
February 10th, 2009 at 8:51 am
My solution is to stop all these liberal laws that are forcing employers to cut back on benefits, lay off workers or much worse, close all together (or send work abroad). How can small to mid-size companies be expected to absorb these costs and still stay in business? Raising prices is not often an option. Didn’t they find out this is not working in Massachusetts? Why put more companies at risk?
February 10th, 2009 at 11:53 am
Thank you Patty and Karen for having such level-headed responses. People get so shrill in their comments and are so ready to bring down our President. If he fails we all fail.
And please get your facts right before you go on a rant. The House and Senate have different cobra provisions so the final language would need to be worked out in conference. This is what the House bill calls for in terms of a subsidy:
Premium Assistance. A federal subsidy of up to 65 percent of the COBRA premium would be available to those individuals who were involuntarily terminated from employment between Sept. 1, 2008, and Dec. 31, 2009, and who are responsible for paying at least 65 percent of the COBRA premium. This would be a temporary provision. Under the House bill, the premium assistance payment would be available for 12 months, whereas under the Senate bill, the premium assistance payment would be available for nine months. The premium assistance payment would be made to the employer or plan sponsor of the group health plan. Under both the House and Senate bills, the employer or plan sponsor would receive the premium assistance payment first by reducing its remittance of payroll taxes to the federal government and if that is not enough, the employer or plan sponsor would receive the premium assistance payment directly from the Treasury Department or the Internal Revenue Service (IRS).
February 10th, 2009 at 1:46 pm
I guess we’ll just have to lay off additional workers to cover the extra expense. The money doesn’t come from thin air and raising prices right now, not very clever.
February 10th, 2009 at 1:53 pm
Colleen, in Massachusetts “temporary provision” means permanant.
February 10th, 2009 at 3:16 pm
This isn’t a law yet and we don’t know what the final provisions will be so save the drama. The language about the premium assistance was taken from the SHRM website — temporary isn’t my phrasing. I’m not even sure what you mean by temporary means permanent in MA. How so?
Here’s the link to the full SHRM article:
http://moss07.shrm.org/LegalIssues/FederalResources/Pages/COBRAChangesFloatedinEconomicStimulusLegislation.aspx
February 11th, 2009 at 10:09 am
I agree with Karen. I’d like to add that these are people who may or may not have families to cover. If “DJ” thinks paying 65% of COBRA is tough on the company, imagine the unemployed worker paying 100%!
February 11th, 2009 at 11:37 am
This is another attempt to Nationalize Healthcare! Don’t be fooled by the well wishers…this is Socialism in the making- If employers can’t afford to offer healthcare then who can come to the rescue? Your tax dollars!! WRITE YOUR CONGRESSMEN!!!
February 11th, 2009 at 2:24 pm
Wow! Let’s hope that we can put people back to work in our country and this really wont be an issue.
February 16th, 2009 at 11:55 am
A good way to offset the transferred cost of COBRA is for employers to provide alternatives for employees who will soon be terminted. Such options as short term health plans and mini-meds used expressly for interim coverage can be applied individually and can encourage employees facing lay-off not to choose COBRA as their plan to remain covered. There are MGAs ou there marketing products to HR departments for this express purpose. Look into it. It can save money for past, present and future employees as well as keep the business boat afloat by keeping the cost of insuring terminated employees out of the company’s hands.
February 18th, 2009 at 11:11 am
Title III – Health Insurance Assistance for the Unemployed Act of 2009 states that “To qualify for premium assistance, a worker must be involuntarily terminated between September 1, 2008 and December 31, 2009.”
February 19th, 2009 at 4:41 pm
This is for people who were INVOLUNTARILY terminated!!! It last nine months and you get the money back. In the ned it will cost you nothing….. What ever happened to compassion in this world.
February 20th, 2009 at 2:52 pm
Jami,
What do you mean it cost you nothing? Every single dollar that the government puts into society was taken out of society. I am compassionate but also concerned about how I’m going to pay my bills and pay for all of our new government bills too
February 20th, 2009 at 5:35 pm
Well. We are a small company with half of the staffs laid off last September 30. We are running on a extreme tight cash tight situation. We are not in the auto-industry food chain. We have all taken a 20% pay cut and we know for sure the owners have not been drawing any salary since July. With this recent new cash requirement, we believe we have to close down the company within days. After some calculation and painful decision for all of us, we opt to close down the company and the owner is spreading the left over cash to each of us to keep us going for a couple months.
Unlike many liberals think business owners are means and rich or they can just pull money off the air, our bosses are sensible and caring! Even with the almost death year and half after 9/11. We managed and surived. I hated to see this happens to them.
Several of us also deeply wish we did not vote for the democrat or Obama. The policies are so half baked and so so naive to the real world!
February 21st, 2009 at 11:04 am
Look, i was recently let go from a job where i was not only in HR, but accounting. I understand tight cash flow more than anyone. However, if you look at the new law, the employer does NOT pay the 65%, only fronts it and is credited on the payroll taxes.
I’m sure that now that you all are spouting about having to shut your business down, you will be thrilled at the prospect that you will get some personal help.
I am on both sides of this issue, understand them very well and can tell you that I, for one, am happy that the government is finally working for the people, rather than doleing out cash in large sums to the heads of corporations that think ‘SOP’ is acceptable in this day and age. It’s not. It’s a new world that needs new solutions. If you want to live in a country that ONLY supports business and not the workers, go live in China and make $2.00 a week. Seriously, think about it.
And for those preaching SOCIALISM: what do you honestly think that the first bailout was? Really people, please think about it.
February 21st, 2009 at 2:49 pm
Dear former employee,
All I can say is Amen finally someone who understands the law! Good luck in your search.
February 23rd, 2009 at 9:05 am
Thank you former employee. I just hope all that have commented here read your words of wisdom.
February 23rd, 2009 at 12:32 pm
Former Employee,
The first bailout WAS socialism just as the new one is. Neither one of them will help in the long run. The government cannot put money into society that it has not first taken from society. As soon as 50% of the people figure out that they can obtain that which they have not earned and as soon as the other 50% of the people figure out that they are working for that which they cannot keep, the latter 50% will stop supporting the first 50% and we’re done. History has proven it over and over. Why must we learn this the hard way, again?
February 23rd, 2009 at 1:50 pm
I think the ant and the grasshopper said it best.
February 23rd, 2009 at 3:37 pm
Sharon D:
My initial posting was actually mostly directed at the person who posted just before I did. I just found it incredulous that a company would chose to shut down based on the perception that they would have to fund the COBRA for thier employees without actually knowing what the law was (based on her posting date). I consider that to be an incredibly cowardly, ill-informed or selfish thing to do.
I see your point and agree for the most part, however, what you are not taking into account is that there is a problem with your percentages. I now fall into a category you haven’t considered; people who WERE working for which they COULD keep and have earned thier right to collect on thier benefits in an unprecidented time where one can’t find a way to contribute again.
Again, I for one, am truly grateful that I qualify for assistance with unemployment and now with assistance for COBRA. While I am an ‘ant’ (see Betty’s post), and I’m sure you are too, I can assure you that what I have interpreted the new and upcoming laws to be are not benefiting the grasshoppers. I could be wrong, but that is my understanding.
And as far as all of the bailouts; let’s hope at some point they work for the long run for the failing companies and banks and hope they get to pay us all back. But in corporations as well as individuals, ants will always be ants and grasshoppers will always be grasshoppers. Don’t you think?
February 25th, 2009 at 7:44 pm
Socialism simply does not work. This plan is simple class-warfare designed to help politicians continue to get elected. We should all turn against the politicians, not against each other.
March 1st, 2009 at 8:08 pm
This will be an expensive 4 years and hopefully there will be more than school teachers and union workers still employeed. He is going to force small buisness to not provide any health care. currently we pay 100 percent of health care to employees that are working. It is terible that we have to lay people off. The reason is not because they deserve it, it is because the workload has dropped and can not afford them. This includes there insurance, now we will have to lay off a couple of more people to offset the cost. It is based on a number and the number is going up thanks obama
March 2nd, 2009 at 11:35 am
This reply is for Pat A. and all who feel similarly. Don’t you get it? You will be reimbursed for the cost. You won’t have to lay anyone off. You will get your money back. What is so wrong with that? At least your employees, who you have to lay off, might be able to afford health coverage! No cost to you, employee gets an opportunity to keep insurance…. win win if you ask me.
March 2nd, 2009 at 11:35 am
This reply is for Pat A. and all who feel similarly. Don’t you get it? You will be reimbursed for the cost. You won’t have to lay anyone off to afford this since you will get your money back. What is so wrong with that? At least your employees, who you have to lay off, might be able to afford health coverage! No cost to you, employee gets an opportunity to keep insurance…. win win if you ask me.
March 2nd, 2009 at 11:39 am
For all, this is how this will work: To help workers who are involuntarily terminated from work, the government’s now offering to subsidize 65% of COBRA premium payments. Once an employee pays his or her 35% share, the company must then front the rest of the money. The employer will pay the insurer directly, then claim the amount as an offset against payroll tax liabilities. Payroll will report any subsidies made and take the offset on an updated Form 941 the IRS will soon release.
Employers will have to pay the premiums for up to nine months for workers (and their families) who are involuntarily terminated between 9/1/08 and 12/31/09. Anyone who was terminated after the 9/1/08 start date and the date’s enactment but didn’t take the coverage because of the expense has 60 days to elect COBRA and take advantage of the subsidy.
Employees with an annual income of $125,000 ($250,000 for families) don’t qualify for this assistance.
This provision will take effect with the first COBRA payment period – March 1st, for most employers. Form 941 reporting will also likely be effective for first quarter 2009.
March 2nd, 2009 at 5:20 pm
I know you think it will not cost us as employers ANYTHING for this COBRA ACT, but, where do you think the money will come from upfront? Think about this! If we are laying people off it’s because we can’t afford them and or their benefits.
Soooo where is the money going to come from to pay our Insurance Co. before the Government pays us back? Insurance Co. DO NOT give you a credit line. Do we jepordize the rest of the staffs benefits or how would you suggest we do this?
Maybe they will give us a zero% line of credit so we can pay the COBRA at the time or better yet, a STIMULIS package to bail us out.
March 2nd, 2009 at 8:09 pm
Connie: Since you get to take the credit on your payroll taxes, it’s almost an immediate payback, assuming you are on an every two week payroll cycle. Remember, the employee has to sign up for COBRA and still has to be able to afford 35% of the cost (a bit challenging out of a small UI check) – before you need to cough up the difference. You take the credit on your next payroll cycle.
March 3rd, 2009 at 11:10 am
How do we determine what the fromer employees new income is to qualify or disqualify them and their family? We will need to know their new income as well as their spouce’s income I suppose. Perhaps requesting their pay stubs and W-2’s from previous years?
March 9th, 2009 at 12:30 pm
Jon – we/the employer don’t decide if they qualify or not based on earnings. That will be on the ex-employee. If they take the 65% reduction and don’t qualify based on their earnings, they are penalized when they file their tax rturn.
March 9th, 2009 at 1:55 pm
question if you have an employee who was term 09/01/2008 making cobra payments of 775.00 a month how much can they expect to have to pay as of may 2009
and does employer remburse them for there part of payments as of march 1 2009
March 9th, 2009 at 3:17 pm
Lucia – the math is not hard to do. assuming $775 is the premium plus 2%, the ee would pay 775 x 35% or $271.25/month. If said cobra participant pays the full 775 for March and April, you’d owe them back a credit of $503.75 x 2 months.