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FAQ: I’m an employer…how do I claim the COBRA premium assistance credit?

The American Recovery and Reinvestment Act of 2009 allows employers to claim a credit against certain employment taxes for providing COBRA premium assistance to eligible individuals, including former employees who were involuntarily terminated from employment any time during the period beginning on September 1, 2008, and ending on December 31, 2009. The 2010 defense bill extends eligibility for COBRA premium assistance through February 28, 2010. The 2010 defense bill also extends the maximum duration of COBRA premium assistance to 15 months and provides an election to pay premiums retroactively and maintain COBRA coverage.

As an employer, you may recover the 65 percent of the subsidy provided to assistance-eligible individuals by taking the subsidy amount as a credit on your quarterly employment tax return, Form 941, Employer’s Quarterly Federal Tax Return.

You may provide the subsidy and thereafter claim the credit on your employment tax return only after you have received the 35 percent premium payment from eligible former employees and other “assistance eligible individuals.” The credit is treated as a deposit made on the first day of the return period (quarter or year).

Notice: The Jobs for Main Street Bill of 2010 (H.R. 2847), would extend COBRA premium assistance through June 30, 2010 and make other enhancements. The House approved the Jobs for Main Street Bill on December 17; the Senate is set to consider it when it returns in January.

Claiming the credit on Form 941

You must treat the 35 percent payment by eligible former employees as full payment, but you are entitled to a credit for the other 65 percent of the COBRA cost on your payroll tax return. The credit is taken on line 12a of Form 941, line 11a of Form 944, or line 13a of Form 943 once the 35 percent of the premium is paid by or on behalf of an assistance eligible individual. The credit is treated as a deposit made on the first day of the return period (quarter or year).

Note. In the case of a multiemployer plan, the credit is claimed by the plan, not the employer. In the case of an insured plan subject to state law continuation coverage requirements, the credit is claimed by the insurance company, not the employer.

An “assistance eligible individual” is a qualified beneficiary of an employer’s group health plan who is eligible for COBRA continuation coverage during the period beginning September 1, 2008, and ending December 31, 2009, due to the involuntarily termination from employment of a covered employee during the period and elects continuation COBRA coverage. The assistance for the coverage can last up to nine months. Assistance eligible individuals can include former employees, their spouses, and dependents.

Supporting documentation

You must maintain supporting documentation for the credit claimed. This includes:

– Documentation of receipt of the employee’s 35 percent share of the premium, including dates and amounts;

– In the case of insured plans, a copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier; and

– Declaration or attestation of the former employee’s involuntary termination, including date of the involuntary termination for each covered employee whose involuntary termination is the basis for eligibility for the subsidy;

– In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals. Attestation of involuntary termination;

– Proof of each assistance eligible individual’s eligibility for COBRA coverage and the election of COBRA; and

– A record of the Social Security Numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with regard to each covered employee, and whether the subsidy was for one individual or two or more individuals.

For more information on claiming the credit, please contact our office.

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