The COBRA subsidy program was set to expire, but President Obama extended for one month the program enacted under the American Recovery and Reinvestment Act. [HR 4691, The Temporary Extension Act of 2010.]

Under the program, eligible individuals pay 35% of their healthcare premiums, and the feds reimburse the employer for the remaining 65% through a tax credit.

The fine print
So why just one month? Congress wants to extend the program through the end of the year but needs to decide how it’ll enact revenue provisions to pay for certain programs (e.g., COBRA subsidy and unemployment benefits programs). The extension buys legislators another four weeks.

To qualify for the subsidy, people must experience a COBRA-qualifying event – i.e., be involuntarily terminated – between 9/1/08 and 3/31/10. Note that the subsidy’s now also available to those who:

• first lose their coverage because of a reduction in hours between 9/1/08 and 3/31/10, and
• are then involuntarily terminated on or after 3/2/10 but by 3/31/10.

The premium reduction applies to periods of health coverage that began on or after February 17, 2009 and lasts for up to 15 months.

Right now, the Senate’s debating HR 4213, which would extend the COBRA subsidy program through the end of the year. We’ll keep you posted.

You’ll find updated COBRA info on the Department of Labor’s Web site.

Under the American Recovery and Reinvestment Act of 2009, most employers report the 65% subsidy for COBRA continuation health insurance premiums, and most do so on Form 941. However, IRS just clarified in its Q&A (question FP-1) that certain companies not required to file a 941 still must report this data elsewhere. Specifically:

• Small employers that file Form 944, Employer’s Annual Federal Tax Return – generally those with an estimated employment tax liability of $1,000 or less in the calendar year – may claim their COBRA credit on Form 944 (line 11a), and
• Agricultural employers may claim the COBRA credit on Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees (line13a).

Employees who are involuntarily terminated between 9/1/09 and 2/28/10 may receive these subsidies for up to 15 months (previously nine months).

You’ll find more COBRA questions and answers here.

Here’s a summary of three IRS updates you’ll need:

1. Forms W-2, W-3, 1098, 1099 and 5498 . Although there are no changes to the forms themselves, take another look at what IRS calls the “lead attention page.” This summary page says that on both the 2008 and 2009 Forms W-2, W-2c, W-2AS, W-2GU, W-2VI, W-3, W-3c, W-3PR, or W-3SS, the sentence “Do not file copy A with SSA” has been changed to “Do not file copy A downloaded from this website with the SSA.”

If you downloaded 2008 or 2009 Forms 1098, 1099, or 5498, note that on the lead attention page, the phrase “Do not file copy A with IRS” has been changed to “Do not file copy A downloaded from this website.”

The official printed version of IRS forms copy A is scannable, but the online version of it, printed from the IRS Web site, isn’t.

2. Publication 15-B, Employer’s Tax Guide to Fringe Benefits. Although the info in the printed copy isn’t accurate, IRS won’t issue a revised edition until next year. Note that on page 20, under the heading “Exclusion from Wages,” the first bullet point should read:

“For combined commuter highway vehicle transportation and transit passes:
a. $120 per month for the months of January and February 2009 and
b. $230 per month for the months of March through December 2009.”

This change was made as a result of the American Recovery and Reinvestment Act of 2009.

3. Publication 15 (Circular E), Employer’s Tax Guide. Chances are you downloaded the 2009 copy of this payroll bible before 3/31/09. If that’s the case, you’ll want a new one from www.irs.gov/formspubs/article/0,,id=109875,00.html.

Here’s why:

New tables for withholding and advance earned income credit (EIC) payments have been developed due to the American Recovery and Reinvestment Act of 2009. The new tables can be found in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through December 2009).

On page 11, the first sentence under “Employee Business Expense Reimbursements” has been changed and now reads, “A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and charges for your employees’ business expenses.”

On page 11 under Accountable plan:
a. The last sentence in item 1 now reads “The reimbursement or advance must be paid for the expense and must not be an amount that would have been paid by the employee.”
b. Item 2 now says, “They must substantiate these expenses to you within a reasonable period of time.”
c. Item 3 now reads “They must return any amounts in excess of substantiated expenses within a reasonable period of time.”
On page 20 in the “Caution” under the section titled “How to Figure the Advance EIC Payment,” amounts previously reported as “$35,464″ and “$38,584″ now read “$35,463″ and “$40,463,” respectively.
On page 24 under “How to deposit with a FTD coupon,” IRS added three new paragraphs at the end of this section to advise the financial agent can’t process foreign checks. If you send a check written on a foreign bank to pay a federal tax deposit, generally you will be charged a deposit penalty and will receive a bill in the mail.

The notices are available at the DOL’s Web site. Here’s what you’ll get there:

1. A general model election notice (”General Notice (Full version)”) for use by group health plans for all qualified beneficiaries, not just Assistance Eligible Individuals, who experienced a qualifying event during the period from September 1, 2008 through December 31, 2009. This notice is for those qualified beneficiaries who experienced a qualifying event during the period from September 1, 2008, through December 31, 2009, and did not elect COBRA coverage, for qualified beneficiaries who recently experienced a qualifying event and have not yet received an election notice, and for those qualified beneficiaries who have not yet experienced a qualifying event.
2. An abbreviated general model notice (”General Notice [Abbreviated version]“) for use by group health plans for all qualified beneficiaries currently enrolled in COBRA coverage who experienced qualifying events that occurred on or after September 1, 2008, to advise them of the availability of the premium reduction.
3. A model alternative notice (”Alternative Notice”) for use where coverage is subject to state law continuation requirements during the period from September 1, 2008, through December 31, 2009.
4. A model COBRA continuation coverage additional election notice (”Notice in Connection with Extended Election Period”) for use by group health plans subject to Federal COBRA for qualified beneficiaries who are or would be Assistance Eligible Individuals but are not enrolled in COBRA coverage. This notice applies to Assistance Eligible Individuals who never elected COBRA coverage and those who elected COBRA coverage but subsequently discontinued coverage with qualifying events that occurred during the period from September 1, 2008, through February 16, 2009.