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.
