Updates on COBRA Premium Subsidy From the DOL and the IRS
On December 19, 2009, President Obama signed the Department of Defense Appropriations Act, 2010 (the "2010 DOD Act"), which extended the availability of the COBRA premium subsidy for assistance eligible individuals. The Department of Labor ("DOL") has provided updated information regarding the COBRA premium subsidy on its website. This information includes a revised Fact Sheet, FAQs for employees, updated posters and flyers, as well as revised model notices. In addition, the Internal Revenue Service has clarified its earlier guidance regarding when an employer may claim the premium subsidy credit for COBRA coverage in a prior year where the subsidy is provided in the current year. This Client Advisory summarizes the new guidance provided by the Department of Labor and the Internal Revenue Service.
An "assistance eligible individual" is any individual who experiences a qualifying event for COBRA continuation coverage, or under a state law that provides comparable continuation coverage (for example, the so-called "mini-COBRA" laws), due to a covered employee's involuntary termination at any time from September 1, 2008, through February 28, 2010, and who timely elects continuation coverage. Please see our Client Advisory here for basic information about the COBRA premium subsidy extension.
UPDATED FACT SHEET:
The DOL has updated its Fact Sheet regarding the COBRA premium subsidy. Since the deadlines for providing notice of the premium subsidy extension, as well as for paying premiums for retroactive COBRA coverage, are triggered based upon the date the legislation was enacted, group health plan administrators should be aware of the following deadlines:
A link to the Department of Labor's Fact Sheet on the COBRA Premium Subsidy may be found here: www.dol.gov/ebsa/newsroom/fscobrapremiumreduction.html.
UPDATED MODEL NOTICES:
On January 15, 2010, the DOL published updated model notices describing the extended COBRA premium subsidy. Plan administrators and issuers should modify the updated model notices to conform to the terms of the applicable health plan and provide the notices in accordance with the notice guidelines described above. Each model notice is designed for a particular group of qualified beneficiaries and contains information to help satisfy the extended COBRA premium subsidy notice provisions.
A link to the Department of Labor's website containing the updated model notices may be found here: http://www.dol.gov/ebsa/COBRAmodelnotice.html.
IRS CLARIFIES FORM 941 GUIDANCE:
In addition, the Internal Revenue Service ("IRS") has recently clarified its position with respect to employers claiming the premium subsidy credit on Form 941 for premium assistance covering a prior-year period, where such assistance is paid in the current year (for example, where the employer receives the assistance eligible individual's portion of the premium payment in 2010 for a period of COBRA coverage that occurred in 2009). Prior guidance on the IRS website (COBRA Questions and Answers: Form Preparation, Q&A-FP-15) stated that an employer was not required to claim the credit on Form 941 for the quarter during which the COBRA subsidy was actually provided, but could instead choose to claim the credit for a later quarter during the same calendar year or amend a previously filed Form 941 for the quarter during which the COBRA subsidy was provided, if it was provided in an earlier quarter. In an email dated January 6, 2010, a senior tax analyst at the IRS addressed this guidance to make clear that, if an employer receives an eligible individual's 35% share of the COBRA premium in 2010 for a coverage period that occurred in 2009, the 65% subsidy credit can be claimed on Form 941 for either the quarter in 2010 in which the 35% premium payment was received or a later quarter in 2010, but not for the quarter in 2009 when the COBRA coverage occurred. While this is not official guidance, it demonstrates the position that the IRS is likely to take if faced with similar facts in the future.
A link to the Internal Revenue Service's website containing COBRA Questions and Answers: Form Preparation, Q&A-FP-15 may be found here: http://www.irs.gov/newsroom/article/0,,id=205373,00.html.
If you have any questions about this Client Advisory, please contact any member of our Employee Benefits Team.
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©2010 Sherman & Howard January 19, 2010