David Kirkpatrick

January 21, 2010

COBRA subsidy extended

Good news for the unemployed who qualify.

The IRS release:

COBRA Subsidy Eligibility Period Extended Through February; 15-Months Subsidy Now Available to Those Who Qualify

Revised Jan. 21, 2010, to add HCTC information

WASHINGTON — Workers who lose their jobs during January and February may qualify for a 65-percent subsidy on their COBRA health insurance premiums, and these newly-eligible individuals, along with those already receiving the subsidy, can now receive it for up to 15 months, according to the Internal Revenue Service.

Created by the American Recovery and Reinvestment Act of 2009, the COBRA subsidy eligibility period was originally scheduled to expire at the end of 2009, and eligible individuals only qualified for the subsidy for nine months. But the Department of Defense Appropriations Act, 2010, enacted on Dec. 19, extended the eligibility period and the maximum duration of COBRA premium assistance.

As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008, and Feb. 28, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. Involuntarily terminated employees who meet certain other requirements, and certain family members of those individuals, are referred to as “assistance-eligible individuals.”

Employers must provide COBRA coverage to assistance-eligible individuals who pay 35 percent of the COBRA premium. Employers are reimbursed for the other 65 percent by claiming a credit for the subsidy on their payroll tax returns: Form 941, Employers QUARTERLY Federal Tax Return, Form 944, Employer’s ANNUAL Federal Tax Return, or Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees. Employers must maintain supporting documentation for the claimed credit.

The administrator of a group health plan or other entity must notify certain assistance-eligible individuals of the extension by Feb. 17, 2010. For assistance-eligible individuals whose nine months of subsidy had already ended, the new law also provides an extended period for the retroactive payment of their 35 percent share during a transition period.

There is much more information about the COBRA subsidy, including questions and answers for employers, and for employees or former employees, on the COBRA pages of IRS.gov.

Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose this more generous benefit, instead. The HCTC pays 80 percent of health insurance premiums for those who qualify. Eligible individuals must be receiving Trade Adjustment Assistance benefits or be between the ages fo 55 and 65 and receiving pension payments from the Pension Benefit Guaranty Corporation. Individuals must also be enrolled in a qualified health plan. See more at HCTC: Eligibility Requirements and How to Receive the HCTC.

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October 6, 2009

Extending new homebuyers tax credit and COBRA benefits?

Maybe so.

From the link:

The White House is weighing whether to support extending the expiring new homebuyer tax credit and COBRA insurance benefits as part of its review of ways to help the U.S. economy. Gibbs, at a White House press briefing on October 5, took pains not to label these measures as part of a second stimulus package, although he noted that the president’s key economic advisors continue to look at additional options to spur job growth.

Obama, in his weekly address on October 3, said he is working closely with his economic team “to explore additional options to promote job creation.” He repeated his promise to take whatever measures are possible to help job seekers find employment, to open capital and credit markets to businesses and to keep homeowners from losing their homes.

Gibbs said that the White House is working with Congress over legislation to extend unemployment insurance. The House passed the Unemployment Compensation Extension Bill of 2009 (HR 3548) in September and sent it to the Senate on September 22 (TAXDAY, 2009/09/24, C.3). Gibbs said he believes the Senate should be able to act on the bill without further delay, even while health care reform deliberations are in the spotlight. “I think the Senate can do both, and a lot more,” Gibbs stated.

September 30, 2009

What is COBRA?

With all the talk about health insurance and ongoing unemployment, COBRA gets tossed around a lot in news and conversation. Here’s a quick overview of COBRA from WeCompareInsurance.

From the first link:

previous article covered how the recent government stimulus plan, known as the American Recovery and Reinvestment Act of 2009 (ARRA), affects COBRA, but the more simple question is, “What is COBRA?”

COBRA stands for Consolidated Omnibus Budget Reconciliation Act and was passed by Congress in 1986 to provide health benefit provisions that provide continuation of group health coverage that would end, such as employer-provided health insurance for an employee who loses his or her job. COBRA amended the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act. If you qualify for COBRA you can keep your group health insurance for a period of time, but you do have to continue paying for your policy.

The following is taken directly from the Department of Labor’s website on COBRA on exactly what COBRA does:

What does COBRA do?

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage.

You must meet a number of criteria to qualify for COBRA coverage, but if you do qualify make certain to complete your application and other paperwork within required deadlines. These deadlines do change – as in the ARRA event in 2009 – so it’s in your best interest to do some research and find out the current deadlines and requirements for COBRA. Currently typical COBRA lasts up to 18 months after the qualifying event, e.g., losing your job, and a qualifying disability can extend that coverage up to another 11 months.

Head to the Department of Labor’s COBRA FAQ page for employees for more information on its continuation of health insurance benefits.

June 16, 2009

The stimulus plan, COBRA and business

I’ve done recent blogging on COBRA and the stimulus plan, but the topic is still fairly confusing in terms of how the unemployed obtain the subsidy and how this program ties into existing ex-employer based COBRA health insurance.

The link in this graf doesn’t make things perfectly clear, but it does offer some interesting ideas on the corporate side in maximizing benefits for both the company and the recently laid-off worker.

From the link:

However, to the extent that an employer subsidizes all or a portion of COBRA benefits following a set of employee layoffs, the employer subsidy period also reduces the length of the federal subsidy period.

For example, assume an employer subsidizes COBRA coverage for three months following a layoff.

Under this scenario, the employee would only be eligible for six months of the federal COBRA subsidy rather than the full time allotted.

For the above reasons, I recommend that employers provide employees with additional severance benefits and eliminate their corporate subsidy for COBRA coverage.

This saves corporate resources, and employees may take maximum advantage of the federal COBRA subsidy.

As an alternative to eliminating their corporate COBRA subsidy, employers may elect to measure COBRA from the “loss of coverage” rather than the actual qualifying event.

May 21, 2009

IRS announces tax breaks for small business

Another bone for Main Street from the IRS.

The release:

Law Offers Special Tax Breaks for Small Business; Act Now and Save, IRS Says

 
IR-2009-51, May 20, 2009

Small Business Week is May 17 to 23, and the Internal Revenue Service urges small businesses to act now and take advantage of tax-saving opportunities included in the recovery law.

The American Recovery and Reinvestment Act (ARRA), enacted in February, created, extended or expanded a variety of business tax deductions and credits. Because some of these changes—the bonus depreciation and increased section 179 deduction, for example—are only available this year, eligible businesses only have a few months to take action and save on their taxes. Here is a quick rundown of some of the key provisions.

Faster Write-Offs for Certain Capital Expenditures

Many small businesses that invest in new property and equipment will be able to write off most or all of these purchases on their 2009 returns. The new law extends through 2009 the special 50 percent depreciation allowance, also known as bonus depreciation, and increased limits on the section 179 deduction, named for the relevant section of the Internal Revenue Code. Normally, businesses recover these capital investments through annual depreciation deductions spread over several years. Both of these provisions encourage these investments by enabling businesses to write them off more quickly.

The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service.

The section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles, furniture and other qualifying property placed in service during 2009. Without the new law, the limit would have dropped to $133,000. The existing $25,000 limit still applies to sport utility vehicles. A special phase-out provision effectively targets the section 179 deduction to small businesses and generally eliminates it for most larger businesses.

Bonus depreciation and the section 179 deduction are claimed on Form 4562. Further details are in the instructions for this form.

Expanded Net Operating Loss Carryback

Many small businesses that had expenses exceeding their incomes for 2008 can choose to carry those losses back for up to five years, instead of the usual two. For small businesses that were profitable in the past but lost money in 2008, this could mean a special tax refund. The option is available for a small business that has no more than an average of $15 million in gross receipts over a three-year period.

This option is still available for most eligible taxpayers, but only for a limited time. A corporation that operates on a calendar-year basis, for example, must file a claim by Sept. 15, 2009. For eligible individuals, the deadline is Oct. 15, 2009.

Eligible individuals should file a claim using Form 1045, and corporations should use Form 1139. Details can be found in the instructions for each of these forms, and answers to frequently-asked questions are posted on IRS.gov.

Exclusion of Gain on the Sale of Certain Small Business Stock

The new law provides an extra incentive for individuals who invest in small businesses. Investors in qualified small business stock can exclude 75 percent of the gain upon sale of the stock. This increased exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. For previously-acquired stock, the exclusion rate remains at 50 percent in most cases.

Estimated Tax Requirement Modified

Many individual small business taxpayers may be able to defer, until the end of the year, paying a larger part of their 2009 tax obligations. For 2009, eligible individuals can make quarterly estimated tax payments equal to 90 percent of their 2009 tax or 90 percent of their 2008 tax, whichever is less. Individuals qualify if they received more than half of their gross income from their small businesses in 2008 and meet other requirements. For details, see Publication 505.

COBRA Credit

Employers that provide the 65 percent COBRA premium subsidy under ARRA to eligible former employees claim credit for this subsidy on their quarterly or annual employment tax returns. To help avoid imposing an unnecessary cash-flow burden, affected employers can reduce their employment tax deposits by the amount of the credit. For details, see Form 941. Answers to frequently-asked questions are posted on IRS.gov.

Other ARRA business provisions relate to discharges of certain business indebtedness, the holding period for S corporation built-in gains and acceleration of certain business credits for corporations. Also see Fact Sheet FS-2009-11.

April 16, 2009

COBRA backgrounder

Here’s a good, easy to follow backgrounder on COBRA. I’ve recently blogged on this topic based on an article I wrote for WeCompareInsurance.com.

From the first link:

The American Recovery and Reinvestment Act, commonly known as the stimulus package, created a significant amount of work for employee benefits professionals with its recent COBRA changes. ARRA creates a federal 65% subsidy for COBRA insurance for individuals who involuntarily lost or will lose their jobs between Sept. 1, 2008 and Dec. 31, 2009.

For example, if the monthly cost of COBRA coverage is $1,000, and employees are responsible for the full premium, under the subsidy, the employee will only be required to pay $350 each month for COBRA coverage, with a federal subsidy of $650.

How it works

The mechanics of the subsidy are interesting. Employers will receive a credit on their payroll tax returns for the federal subsidy. For example, if the federal subsidy is $650, and employee pays $350 for COBRA coverage, the employer will receive a credit of $650 on its federal withholding tax returns (i.e., Form 941).

For employers with more than 20 employees, these procedures will apply whether a plan is fully insured or self-insured. However, workers at small firms, who are not normally eligible for COBRA coverage, still will be entitled to the federal subsidy if state-mandated coverage is comparable to COBRA. However, in these circumstances, the insurance carrier, and not the employer, will be the entity responsible for providing the subsidy and taking the payroll tax credit.

The COBRA subsidy only lasts for a maximum of nine months. When COBRA rights are cut off, the subsidy ends. For example, if an employee receives new employment with a one-month waiting period, when the employee becomes eligible for new coverage, the COBRA subsidy ends. It is the responsibility of employees to notify employers when new coverage exists.

If an employer denies the employee the federal subsidy, there is an appeals procedure with the Department of Labor and the Department of Health and Human Services. It is likely that disputes will exist with regard to employees who fail to return to employment following a period of FMLA leave or other leave of absence and consider themselves to be terminated. In many of these situations, the employer will consider the employee to have voluntarily abandoned their position when they fail to return to work following the expiration of an approved leave of absence. Clarification regarding the definition of involuntary termination is expected.

April 13, 2009

The Stimulus Plan of 2009 and COBRA

Good news for the recently unemployed. I have heard actually collecting on this isn’t so easy so far.

From the link:

The world’s economy is in a global recession and many Americans are finding themselves out of work. For those who are out of work and were part of an employer-based health insurance plan, this means either losing health insurance coverage – not a good option in any circumstance – or participating in the government’s Consolidated Omnibus Budget Reconciliation Act, also known as COBRA.

A problem with COBRA is although you can keep your health insurance for a limited time while out of work, you do end up paying the entire premium. A health insurance premium that your employer most likely contributed to as part of your compensation. Under these conditions COBRA is a less than ideal solution because not only are you out of work, but your health insurance premiums under COBRA most likely just went way up in cost each month.

The recent stimulus package passed by Congress, known as the American Recovery and Reinvestment Act of 2009 (ARRA) created a premium reduction and additional election opportunities under COBRA for the recently unemployed.

About this provision of ARRA, Alan D. Lebowitz, deputy assistant secretary of labor for the department’s Employee Benefits Security Administration (EBSA) says, “Our action today gives workers and their families useful information on their right to receive the COBRA subsidy and makes it easier for employers and plans to meet their notice obligations. Given the current economic situation facing dislocated workers and their families, it is very important that individuals do not lose their group health coverage.”

You can find out more about ARRA and COBRA at the Department of Labor’s website.

The following information is taken from the DOL’s news release on ARRA, COBRA and health insurance for the recently unemployed:

The department has developed four notice packages tailored to fit different types of plans and individuals:

  1. A general notice to be given to qualified beneficiaries covered by plans subject to the federal COBRA at the initial COBRA election opportunity.
  2. An abbreviated general notice, which may be furnished to individuals who elected and are still covered by COBRA.
  3. An alternative notice to be sent by issuers of group health insurance coverage subject to state continuation coverage laws.
  4. A notice of extended election periods for eligible individuals who declined or discontinued COBRA coverage.

Each package contains a summary of the premium reduction provisions, questions and answers, and forms to use in requesting the premium reduction (and COBRA coverage, if not already enrolled).

Under COBRA, most group health plans must give employees and their families the opportunity to temporarily continue their group health coverage when coverage would otherwise be lost for reasons such as termination of employment, divorce or death.

The four model notice packages are available for download from EBSA’s dedicated Web page at http://www.dol.gov/ebsa/cobra.html. The Web page also contains additional frequently asked questions to help dislocated workers, their families and their employers understand the requirements.