Update Jan. 21, 2015: The COBRA premium assistance credit was available to an employer for premiums paid on behalf of employees who were involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010. The COBRA premium assistance credit is not available for individuals who were involuntarily terminated after May 31, 2010. Therefore, only in rare circumstances, such as instances where COBRA eligibility was delayed as a result of employer-provided health insurance coverage following termination, will the credit be available. Note: An employer can no longer claim the COBRA premium assistance payments as a credit on Forms 941, 943 or 944. Instead: For tax periods beginning after Dec. 31, 2013, an employer who files Form 941, Employer’s QUARTERLY Federal Tax Return, must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance-eligible individuals. For tax periods beginning after Dec. 31, 2013, an employer who files Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, must file Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. For tax periods beginning after Dec. 31, 2013, an employer who files Form 944, Employer’s ANNUAL Federal Tax Return, must file Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. RD-1 Q. Does an employer have to attach supplemental information to the Form 941 (or Form 941-X, if applicable) it submits to the IRS when claiming the COBRA premium assistance credit? A. No. Additional information relating to the COBRA premium assistance credit should not be submitted to the IRS, unless requested. However, those claiming the credit must maintain supporting documentation for the credit claimed. Such documentation includes: Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% share of the premium. In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. 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, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to May 31, 2010), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. Proof of each assistance eligible individual’s election of COBRA coverage. A record of the Social Security numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. Proof of delayed eligibility for COBRA (i.e., length of severance period prior to start of COBRA coverage), if applicable. Other documents necessary to verify the correct amount of reimbursement. (1/31/14) RD-2 Q. When does the law become effective? A. The law became effective on the date of enactment, Feb. 17, 2009. However, under a transition rule, the regular premium amount may continue to be paid for up to two months after enactment (e.g., for March and April), and the subsidy can be provided retroactively. (02/26/09) RD-3 Q. It was mentioned that this would be a temporary statute. How long is this change expected to be in effect? A. An assistance-eligible individual’s qualifying event (that is, the involuntary termination of employment or reduction in hours followed by involuntary termination of employment) must occur on or before May 31, 2010, and the COBRA subsidy may apply for up to 15 months. In addition, in some cases, COBRA coverage may begin some months after the involuntary termination. In such a case, the subsidy can apply for up to 15 months from the time COBRA coverage begins. (8/13/10) RD-4 Q. When more than one entity may be responsible for receiving COBRA premiums, who should claim the credit? A. The law as enacted clarifies that the person to whom the reimbursement is payable is: 1) the multiemployer group health plan, 2) the employer maintaining a group health plan that is subject to federal COBRA continuation coverage requirements or that is self-insured, or 3) the insurer providing coverage under a plan not included in 1) or 2). Only this person is eligible to offset its payroll taxes by the amount of the subsidy. (02/26/09) RD-5 Q. Will there be a means other than a quarterly Form 941 for employers (or other person if applicable) to claim credit for the COBRA subsidy provided to assistance eligible individuals? There is some information out there saying the credit can be claimed on a more frequent basis (e.g., weekly). A. As discussed in question FP-9 on the Form Preparation for Pre-2014 Tax Periods Q&A page (see link at bottom), an employer may reduce its payroll tax deposits during a quarter by the amount of subsidy provided during the quarter. However, in all cases, credit for the subsidy must be claimed on the employer’s payroll tax return, whether the quarterly filed Form 941 PDF (Employer's QUARTERLY Federal Tax Return) or the annually filed Form 943 PDF (Employer's Annual Federal Tax Return for Agricultural Employees) or 944 PDF (Employer's ANNUAL Federal Tax Return). A payroll tax return is the only means to claim credit and be reimbursed for the COBRA subsidy. (1/10/14) Note: For tax periods beginning after Dec. 31, 2013, an employer who files a Form 941 must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. Similarly, for tax periods beginning after Dec. 31, 2013, an employer who files Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, must file Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. An employer who files Form 944, Employer’s ANNUAL Federal Tax Return, must file Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. See Form Preparation – Post-2013 Tax Periods Q&A page (see link at bottom) for additional information relating to tax periods beginning after Dec. 31, 2013. (4/11/14) RD-6 Q. If, in 2010, an employer receives payment of an assistance eligible individual’s 35% share of the COBRA premium for 2009 coverage, does question FP-15 (pre-2014) permit the credit for the related 65% premium subsidy to be claimed for a quarter in 2009? A. No. If an employer receives an assistance eligible individual’s 35% share of the COBRA premium in 2010, the employer may claim the credit for the related premium subsidy on Form 941 for either the quarter in 2010 in which it receives the individual’s 35% premium payment or a later quarter in 2010, but not for a quarter in 2009, regardless of the fact that the premium is for coverage during 2009. In all cases, however, if an employer chooses to reduce its payroll tax deposits during the quarter based on the receipt of the individual’s 35% premium payment, the employer must claim the credit for the related subsidy amount on Form 941 for the quarter during which its payroll tax deposits were reduced. In addition, of course, an employer may only claim credit for the subsidy amount once. (1/31/14) RD-7 Q. Is there a specific date when employers can no longer take this credit? A. An individual can be eligible for the COBRA subsidy based on an involuntary termination of employment that occurs as late as May 31, 2010 (the qualifying event), and the subsidy can apply for up to 15 months of COBRA coverage. Although COBRA coverage generally begins shortly after the qualifying event, in some cases it may begin some months later (i.e., after the end of a severance period). In such a case, the subsidy can apply for up to 15 months from the time COBRA coverage begins. (1/31/14) RD-8 Q.Will there be anything that payroll service providers will have to provide to employers and/or IRS? A. Payroll service providers need to communicate with their clients and ensure their clients maintain proper supporting documentation for the credit claimed. Such documentation includes, but is not limited to: Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35 percent share of the premium. In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA. 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, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to May 31, 2010), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. Proof of each assistance eligible individual’s election of COBRA coverage. A record of the Social Security numbers (SSNs) of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals. Proof of delayed eligibility for COBRA (i.e., length of severance period prior to start of COBRA coverage), if applicable. Other documents necessary to verify the correct amount of reimbursement. This documentation must be maintained, but will not be required to be submitted to the IRS, unless requested. (1/31/14) RD-9 Q. Is the assistance eligible individual’s share of the premium always 35 percent, or are there other elections the individual can make? A. The assistance eligible individual is required to pay 35 percent of the amount of the total premium for the coverage the individual elects. This percentage is fixed by statute. (03/05/09) RD-10 Q. If an employer reduces its payroll tax deposits during the quarter by the amount of its credit for the subsidy provided during the quarter, does the employer have to report the specific amount of the credit that is applied against each deposit? A. No. For tax periods ending before Jan.1, 2014, an employer who files a Form 941 claims the credit on the quarterly Form 941, regardless of whether the employer reduces its deposits during the quarter by the amount of the credit. It is not necessary for the employer to report the specific amount of the credit that is applied against each deposit. For example, an employer that applies the credit towards its required semi-weekly deposits would still report the total credit at the end of the quarter on Form 941 for the quarter. (1/31/14) Note: For tax periods beginning after Dec. 31, 2013, an employer who files a Form 941 must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. Similarly, for tax periods beginning after Dec. 31, 2013, an employer who files Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, must file Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. An employer who files Form 944, Employer’s ANNUAL Federal Tax Return, must file Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals. See Form Preparation – Post-2013 Tax Periods Q&A page (see link at bottom) for additional information relating to tax periods beginning after Dec. 31, 2013, including information regarding the consequences of an employer reducing its deposits in anticipation of the COBRA premium assistance credit during such periods. (4/11/14) RD-11 Q. Regarding federal unemployment tax (FUTA), will an employer’s percentage contribution or the balance of money in that fund change as a result of the COBRA premium subsidy? A. No, the new subsidy provision has no impact on FUTA. (03/19/09) RD-12 Q. As discussed in question RD-1 (see above), a person claiming the payroll tax credit must maintain supporting documentation for the credit claimed, which includes an attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to May 31, 2010, or the period from March 2, 2010, to May 31, 2010, in the case of a reduction in hours occurring between Sept. 1, 2008, and May 31, 2010, followed by an involuntary termination), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy. If an insurer or multiemployer plan is the person entitled to claim the payroll tax credit for the COBRA premium subsidy, what documentation must the insurer or multiemployer plan obtain in order to establish that an employee is eligible for the subsidy by reason of an involuntary termination of employment and that the related payroll tax credit applies? A. If an insurer or a multiemployer plan is the person who is entitled to the payroll tax credit, the supporting documentation must include a statement from the employee or the employee’s former employer that the employee was involuntarily terminated and that the termination occurred during the period of Sept. 1, 2008, through May 31, 2010, or the period from March 2, 2010, to May 31, 2010, in the case of a reduction in hours occurring between Sept. 1, 2008, and May 31, 2010, followed by an involuntary termination. (Of course, if an employee is not eligible for COBRA continuation coverage because the termination of employment was for gross misconduct, the employee is also not eligible for the COBRA premium subsidy.) The statement must include a certification that, to the best of the employee’s or the employer’s, as applicable, knowledge and belief, all of the information provided is true and correct and must be signed by the employee or the employer, as applicable. The form headed “Request for Treatment as an Assistance Eligible Individual” included in the Department of Labor’s model COBRA notices, if properly completed by the employee, can be used for as the required statement from the employee. The documentation must also include the name and address of the employer. If an insurer or multiemployer plan complies with these documentation procedures, the IRS will not challenge the insurer’s or multiemployer plan’s treatment of the termination of employment as involuntary, provided that the insurer or multiemployer plan has not engaged in fraud, malfeasance or misrepresentation of a material fact and does not know or have reason to know of fraud, malfeasance or misrepresentation of a material fact on the part of the employee or employer. (8/13/10) RD-13 Q. Is an employer, multiemployer plan or insurer required to report the COBRA premium subsidy provided to an assistance eligible individual during the year on Form W-2 or Form 1099? A. No information reporting of the COBRA premium subsidy is required to be provided to an assistance-eligible individual or to the IRS by an employer, multiemployer plan or insurer. However, any person claiming a payroll tax credit for the COBRA premium must keep records of the individual payments and other documentation to support the credit claimed as discussed in RD-1. (1/31/14) RD-14 Q. In the case of a group health plan (other than a multiemployer plan) that is subject to federal COBRA requirements and that covers employees of two or more unrelated employers, who is entitled to take the payroll tax credit for the COBRA premium subsidy provided to assistance-eligible individuals receiving COBRA coverage under the plan? A. If a plan (other than a multiemployer plan) that is subject to federal COBRA requirements covers employees of two or more unrelated employers, the person entitled to take the payroll tax credit attributable to the premium subsidy provided to an assistance-eligible individual is the former employer of the employee on whose involuntary termination of employment the individual’s eligibility for the subsidy is based. Thus, the total amount of the premium subsidy provided to all assistance-eligible individuals under the plan is allocated among the former employers on this basis. (06/04/09) RD-15 Q. In the case of a group health plan (other than a multiemployer plan) that is subject to Federal COBRA requirements and that covers employees of different employers that are members of a single controlled group, who is entitled to take the payroll tax credit for the COBRA premium subsidy provided to assistance-eligible individuals receiving COBRA coverage under the plan? A. Although all the members of a controlled group are treated as a single employer for employee benefit purposes, each member is treated as a separate employer for payroll tax purposes. Therefore, if a plan (other than a multiemployer plan) that is subject to federal COBRA requirements covers employees of different employers that are members of a single controlled group, the person entitled to take the payroll tax credit attributable to the premium subsidy provided to an assistance-eligible individual is generally the former employer of the employee on whose involuntary termination of employment the individual’s eligibility for the subsidy is based. Thus, the total amount of the premium subsidy provided to all assistance-eligible individuals under the plan is allocated among the former employers on this basis. (06/04/09) RD-16 Q. In the case of a group health plan maintained by an agency of a state government (state agency) that provides health coverage to employees of various agencies of the state and local governments within the state, that is subject to the federal COBRA requirements under the Public Health Service Act (PHSA), and under which assistance eligible individuals are required to pay their 35 percent share of the COBRA premiums directly to the state agency, who is entitled to take the payroll tax credit for the COBRA premium subsidy provided to assistance-eligible individuals receiving COBRA coverage under the plan? A. In general, the person entitled to take the payroll tax credit attributable to the premium subsidy provided to an assistance-eligible individual is the former employer (i.e., the former employing agency) of the employee on whose involuntary termination of employment the individual’s eligibility for the subsidy is based. However, in the circumstances described above, the state agency may claim the payroll tax credit attributable to the premium subsidy provided to assistance-eligible individuals under the plan, rather than the individual former employing agencies, but only if the former employing agency provides the state agency with confirmation that the employee was involuntarily terminated and that the former employing agency will not claim a payroll tax credit for any premium subsidy provided to the former employee or related beneficiaries. As in other cases, the payroll tax credit can be claimed only after the assistance-eligible individual’s 35 percent share of the premium has been received by the state agency. For this purpose, in accordance with Notice 2009-27 PDF, Q&A-20, whether the assistance-eligible individual’s 35 percent share of the premium has been received is determined without regard to any amount paid on behalf of the assistance-eligible individual by any agency of the state or any local government within the state if the payment is made in connection with the individual’s status as a former employee (or spouse or child of a former employee) of the state or a local government within the state. (06/04/09) Related COBRA Questions and Answers: Administration and Eligibility COBRA Questions and Answers: Form Preparation for Pre-2014 Tax Seasons COBRA Questions and Answers: Form Preparation for Post-2013 Tax Periods COBRA Questions and Answers: Taxability and Recapture COBRA Questions and Answers: for Employers Forms & Publications
