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.

First, before discussing the politics of the bill, let’s describe the key proposals. Employers who hire the unemployed will receive:

• An exemption from the 6.2% Social Security payroll tax for each worker hired through December, and
• An additional $1,000 tax credit per worker if new workers stay on the job a full year.

As they say in the late-night infomercials, “But wait — there’s more.” And that’s not necessarily good.

The current bill, at $35 billion, is a modification of one the House had passed in December with  $50-billion price tag, including a six-month extension of jobless aid.

The Senate pared that to a smaller measure. The House amended the Senate’s measure to conform with so-called pay-as-you-go budget rules requiring future spending increases or tax cuts to be paid for with either cuts to other programs or equivalent tax increases.

That tweak means the bill will have to go back to the Senate for approval — or further modification — before President Obama get his chance to sign off on the measure. All of that means we’re probably looking at a minimum of a few more days before the bill becomes law.

The deadline for eligibility for the 65% health insurance premium subsidy has now been extended to those who are laid off through March 31. Previously, eligibility only extended to those who lost their jobs through Feb. 28.

Those eligible can still receive the subsidy for 15 months.

Last week, the House passed the one-month extension, but the bill got held up in the Senate until Tuesday. Once it passed the Senate, Obama quickly signed it into law.

The bill also allows thousands of workers whose unemployment benefits expired on Feb. 28 to receive them for another 30 days. The Department of Labor estimated nearly 400,000 could’ve seen their aid cut if Congress didn’t act.

Congress will now consider a much larger bill that would extend the COBRA subsidy and unemployment benefits through the end of the year.

We’ll keep you posted.

The Military Spouses Residency Relief Act (P.L. 111-097) exempts from income tax any spouses of military personnel who move into a state to be with the service member.

Any income the spouses earn for services performed in a state will be exempt from state withholding.

That means the spouses won’t have to file an income tax return in the worked-in state because prior residency applies. No doubt some of the affected employees will come to you, confused about how they can adjust their withholding. Here are some important state updates that’ll help you answer their questions:

ALABAMA – To claim the withholding exemption for military spouses, employees must attach Form DD-2058 to Form A-4.

CALIFORNIA – The state revised Form DE 4, Employee’s Withholding Allowance Certificate, so military spouses may claim exempt from state tax withholding.

Cite: www.edd.ca.gov/pdf_pub_ctr/de4.pdf

DISTRICT OF COLUMBIA – A spouse of a service member whose wages are exempt from the District’s income tax under the new law may file a D-4 with their employer to claim exemption from withholding.

Cite: http://newsroom.dc.gov/show.aspx/agency/otr/section/2/release/18797

ILLINOIS – A spouse’s state of residence does not change when he or she moves to a new state because the service member is stationed there.

Cite: www.revenue.state.il.us/taxforms/IncmCurrentYear/Individual/Schedule-MR.pdf

IOWA – You’ll want a new copy of Form IA W-4. It’s been revised to allow military spouses to claim exempt.

Cite: www.iowa.gov/tax/forms/44019.pdf

KENTUCKY – For 2009, military spouses who fall under the federal law should file Form 740-NP, Kentucky Individual Income Tax Nonresident or Part-Year Resident Return, to request a refund of the Kentucky income tax withheld from his or her 2009 pay. The income would not be reported as taxable on the Kentucky income tax return. For 2010, military spouses should file a new Form K-4 with his or her employer to claim the exemption from withholding of state income tax.

Cite: http://revenue.ky.gov/Hot+Topics/AddHT.htm

LOUISIANA – Military spouses must file a new Form L-4E at the end of every year if they qualify for the exemption.

Cite: http://rev.louisiana.gov/forms/lawspolicies/RIB10006.pd

MARYLAND – The wages earned by a spouse of a nonresident service member may be exempt from state income tax under the Military Spouses Residency Relief Act, when the spouse isn’t a legal resident of Maryland. The exemption may be claimed by filing a revised Form MW507 with the employer.

Cite: http://individuals.marylandtaxes.com/incometax/military/default.asp

MASSACHUSETTS – The state’s following the federal Military Spouses Residency Relief Act.

NEW YORK – The payroll expense of a covered employee/military spouse must be included when computing the Metropolitan Commuter Transportation Mobility Tax. [Department of Taxation and Finance, TSB-M-10(1)(l); TSB-M-10(1)MCTMT, 1/11/10.] Also, Form IT-2104 has been revised to allow military spouses to claim exempt from state tax withholding.

Cite: www.tax.state.ny.us/pdf/2010/fillin/wt/it2104e_2010_fill_in.pdf

NORTH CAROLINA – The Department of Revenue is updating forms, publications and other tax info to provide guidelines. The NC-30 and Form NC-4 have been revised.

Cite: www.dor.state.nc.us/taxes/individual/armedforces/spouses.html

NORTH DAKOTA – You should continue withholding state income tax from the wages you pay military spouses. The state will develop forms to use for the exemption.

Cite: www.nd.gov/tax/indwithhold/pubs/specialedition.pdf

OREGON – Here, military pay earned by a nonresident stationed in Oregon isn’t taxed.

Cite: www.oregon.gov/DOR/PERTAX/docs/101-657.pdf

VIRGINIA – A spouse whose wages are exempt from state income tax under the Servicemember Civil Relief Act may claim an exemption from Virginia withholding tax. The state revised Form VA-4.

Cite: www.tax.virginia.gov/Documents/Military Spouses Residency Relief Act Tax Bulletin.pdf

President Obama couldn’t convince Republicans to take up his health reform proposals, but he has vowed to plow ahead anyway. Here’s where he’s going  with the latest plan.

• Elimination of the special deal for Nebraska calling for the federal government to pay the full cost of a Medicaid expansion for that state. Instead, the President proposed that  federal government help all states absorb the cost of the Medicaid expansion from 2014 until 2017.
• Delaying the excise tax on so-called “Cadillac plans” until 2018 for all taxpayers, not just union members. Still, the excise tax remains a key part of the proposal.
• No “public option.” There is no attempt to revive the idea of a government-backed insurance plan to compete with the private sector.
• Less restrictive language on abortion. The proposal drops the “Stupak amendment,” which would bar insurers from offering abortion coverage to anyone buying a policy with a federal subsidy.
• Keeping the tax on upper-income individuals and families. The Obama approach supprts the increase in Medicare payroll tax for individuals earning more than $200,000 a year and couples earning more than $250,000.
• State-based insurance exchanges. That’s different from the House proposal for a national exchange.
• Lower eligibility for Medicaid. The figure released in the meeting with Republicans set eligibility at 133% of the federal poverty level, instead of the House proposal of 150% of the poverty level.
• Limiting health-premium costs according to income. Under the plan, a family earning about $88,000 a year would pay no more than 9.5% of income toward annual health insurance premiums. Out-of-pocket costs, such as co-payments or deductibles, would have to be paid separately and wouldn’t be included in the 9.5%.

Go the the White House Web site to see the full plan.

The White House’s new health plan could lead to sweeping changes to reform — and one provision offers a ray of hope to employers.

On Monday, President Obama released a new health reform blueprint that attempts to bridge the gap between the bills the Senate and House passed last year.

And around the time you read this, Obama will present the proposal at a bipartisan meeting of congressional leaders.

Here’s what some of the key provisions in proposal look like heading into the meeting.

Employer mandate

Like the Senate bill, Obama’s new plan does not impose a mandate on employers to provide health insurance.

But it does make one significant change for businesses with more than 50 employees.

As you may remember, under the Senate bill businesses with over 50 employees would have to pay a $750 penalty multiplied by the number of full-time employees if any of their employees use taxpayer money to obtain health insurance.

Well under Obama’s new plan, businesses could deduct 30 workers from their penalty. So a company with 51 full-time workers, for instance, would multiply the penalty by only 21. But the new proposal raises the $750 penalty to $2,000.

Rate hike check-ups

One change employers may be able to get excited about: Obama’s new plan calls for giving the feds the authority to block insurers from making exorbitant premium-rate increases.

A new Health Insurance Rate Authority would be created to lay out what it views as reasonable rate increases, and those considered unreasonable could be blocked.

That could be good news for employers struggling to keep healthcare premiums down.

What to keep your eye on

The estimated cost of Obama’s new plan is $950 billion over 10 years. That’s more than the Senate’s bill but less than the House’s.

Other key changes in the plan:

• The tax on high-end health plans (so-called Cadillac plans) would be delayed for all workers until 2018. Plus, the threshold for the tax would be raised to plans valued at $27,500 and above for a family of four. Under the Senate bill, only plans valued at $23,000 and above would be affected.
• The plan does not include a government-run public health option.
• It also eliminated a highly unpopular provision in the Senate bill — called the “Cornhusker Kickback” by many Republican opponents — which would exempt Nebraska from paying increased Medicaid expenses.

There’s no telling what’ll happen next, but Republicans have said they plan to carry their own ideas into the meeting with congressional leaders. And White House aides have acknowledged they are willing to fold Republican ideas into the new plan.

But White House Dems have stated they have no intention of throwing the plan out and starting from scratch — as Republicans have demanded.

President Obama wants legislation passed that would require all businesses to offer automatic retirement accounts. The devil’s in the details.

The plan, part of a tax package aimed at middle- income Americans,  would let employees automatically enroll in direct-deposit IRA accounts and expand matching tax credits.

The White House released the plan accompanied by a Government Accountability Office  estimate that about 80 million Americans don’t have retirement accounts through their employers and 63% of low-income workers have little or no savings at retirement. Here are the details of the plan:

• Workers who don’t opt-out would automatically enroll in a retirement savings account probably through payroll deductions into one of several investments including what’s known as a “stable-value fund” consisting of special U.S. savings bonds and a “target-date fund” that automatically shifts investments from more aggressive assets to more conservative ones as a worker gets closer to retirement.
• The accounts would be the same as Roth IRAs where taxes are paid upfront.
• The accounts would have the same annual investment limits as traditional IRAs: $5,000 for employees under the age of 50 and $6,000 for those 50 and over.
• Employers would have access to a government Web site that would help them find a bank, brokerage firm or mutual fund company to administer the accounts.
• Contract employees would be eligible for the plan.
• Workers who join the plan would get a tax credit that matches 50% of the first $1,000 of contributions by families earning as much as $65,000; families that earn up to $85,000 would get some fraction of that credit.

The National Small Business Association, which represents 150,000 members, has already issued statements opposing the plan. Among the NSBA’s reasons for opposition:

• The plan would create another layer of administrative burdens on owners.
• Many small businesses that don’t use a payroll contractor or have direct-deposit would find the plan impractical to run.

Democrats in the House and Senate say the plan could be enacted before the end of the year.

The new 401(k) rules are now being reviewed by the Office of Management and Budget. And the DOL hopes they’ll be out by the end of the month, said Phyllis Borzi, assistant secretary of labor for the DOL’s Employee Benefits Security Administration, speaking at a conference sponsored by the National Institute on Retirement Security.

Borzi didn’t say exactly what the new rules would cover. But she did mention they’ll be more faithful to the statutory provision than the ones we saw issued in the final days of George W. Bush’s presidency that would’ve allowed advisers affiliated with mutual fund and brokerage firms to provide investment advice.

Borzi went on to say that the new rules will be much more direct and streamlined, and will underscore the fiduciary duty of plan sponsors to carefully elect and monitor service providers.

In addition, she hinted that the Obama administration isn’t likely to waive fiduciary rules required of employers under the Employee Retirement Income Security Act (ERISA).

Hope your people are getting used to the extra paperwork and headaches associated with the COBRA subsidy — because it looks like another extension may be on its way.

The Obama administration has proposed the 65% health insurance premium subsidy be extended yet again.

The latest extension is tucked inside the administration’s proposed federal budget for fiscal year 2011. Under the proposal, employees laid off from March 1, 2010 through Dec. 31, 2010 would be eligible for the subsidy for up to 12 months.

Currently, employees laid off from Sept. 1, 2008 through Feb. 28, 2010 can receive the subsidy for up to 15 months. The latest extension would not affect those workers.

What do you think of this latest proposal? Let us know in the Comments Box below.

Under Obama’s proposed budget, which was released on Feb. 1, small employers who begin offering a retirement plan could receive a $1,000 tax credit for three years.

Under the current law, the maximum credit is $500 a year for three years.

The new pension plan startup credit would be effective after Dec. 31, 2011. The increase is meant to work with Obama’s new direct-deposit Individual Retirement Account (IRA) proposal to help employees be more financially secure when they retire.

The IRA plan would require employers who don’t offer a pension plan to implement a direct-deposit IRA and automatically enroll employees in it, unless they opt out. Employers with 10 or fewer workers would be exempt.

In addition, Obama has proposed a tax credit in which the government would match 50% of the first $1,000 of contributions by families that earn up to $65,000 and a partial tax credit to those earning up to $85,000.