Vision Payroll

The Internal Revenue Service recently released an advance copy of Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided.

This notice provides guidance in several areas. In addition to a background of the COBRA premium assistance, Questions and Answers cover the following areas:

1. Involuntary Termination
2. Assistance Eligible Individual or AEI
3. Calculation of Premium Reduction
4. Coverage Eligible for Premium Reduction
5. Beginning of Premium Reduction Period
6. End of Premium Reduction Period
7. Recapture of Premium Assistance
8. Extended Election Period
9. Payments to Insurers Under Federal COBRA
10. Comparable State Continuation Coverage
11. Additional Issues

Over the next few weeks, Vision Payroll will be providing more detailed information on each of these areas.

Under the American Recovery and Reinvestment Act of 2009 (ARRA), the first $2,400 of unemployment benefits received by a taxpayer during 2009 are not subject to federal income tax. The Internal Revenue Service (IRS) recently released IR-2009-29, First $2,400 of Unemployment Benefits Tax Free for 2009, to help taxpayers understand the new rules.

“This morning we learned that a record 5.6 million people were receiving unemployment benefits in the middle of March. This underscores the need for the relief provided by [ARRA], which includes making the first $2,400 of unemployment insurance exempt from tax,” said IRS Commissioner Doug Shulman. “I urge all unemployed workers to take this special tax break into account as they plan their tax withholding and quarterly estimated tax payments for the year. This change offers a helping hand to millions of Americans who are out of work and struggling to make ends meet.”

Married couples who are both collecting unemployment benefits may each claim exemption for up to $2,400 thereby allowing up to $4,800 to be received tax-free in certain circumstances.

Individuals who are working and receiving unemployment benefits should consider filing a revised Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado to reflect both the exemption from tax for some unemployment benefits as well as the reduced withholding under ARRA.

Contact Vision Payroll if you have any questions on the taxation of unemployment benefits under ARRA.

The US Department of Labor (DOL) announced recently that it has filed suit against former National Football League (NFL) player Michael Vick. Vick, who formerly played for the Atlanta Falcons, is scheduled to be released in May from a Kansas prison. The suit alleges, “Vick and others violated federal employee benefits law by making a series of prohibited transfers from a pension plan sponsored by one of his companies. The [DOL] also simultaneously filed an adversary complaint in federal bankruptcy court to prevent Vick from discharging his alleged debt to the MV7 retirement plan.”

Vick, who previously filed for bankruptcy, owned MV7, a celebrity marketing enterprise. MV7 sponsored a defined benefit plan for current and former employees.

Secretary of Labor Hilda L. Solis, said, “This action sends a message that the [DOL] will not tolerate the misuse of plan money and will take whatever steps necessary to recover the assets owed to eligible workers.”

The suit alleges that Vick, a star at Virginia Tech before joining the NFL, made $1.35 million in prohibited transfers from the plan in violation of his duties under the Employee Retirement Income Security Act or ERISA. The money was allegedly “used to help pay the criminal restitution imposed upon Vick after his conviction for unlawful dog fighting as well as his attorney in the bankruptcy cases.”

Contact Vision Payroll if you have any questions on this matter.

On January 21, 2009, the US Department of Labor (DOL) published at 74 FR 3822 “final rules under the Employee Retirement Income Security Act, and parallel provisions in the Internal Revenue Code of 1986, relating to the provision of investment advice by a fiduciary adviser to participants and beneficiaries in participant-directed individual account plans, such as 401(k) plans, and beneficiaries of individual retirement accounts (and certain similar plans). These rules [affected] sponsors, fiduciaries, participants and beneficiaries of participant-directed individual account plans, as well as providers of investment and investment advice related services to such plans.”

On January 20, 2009 Rahm Emanuel, Assistant to the President and Chief of Staff, had “directed Agency Heads to consider extending for 60 days the effective date of regulations that have been published in the Federal Register but not yet taken effect.” Pursuant to that memo, the [DOL] announced recently that it was delaying the effective date of those rules from March 23, 2009 to May 22, 2009. This will give the DOL “time to review legal and policy issues raised by many of the 26 public comment letters [it] received.”

Contact Vision Payroll if you have any questions on this delay.

This week’s question comes from Sandy, an HR manager. We’ve just had our first employee sign up to receive the COBRA premium subsidy. What information do we need to keep to document the COBRA credit? Answer: Employers reimbursing employees for 65% of the eligible COBRA continuation premium must maintain specific documentation. This information is not to be submitted with the Form 941, Employer’s QUARTERLY Federal Tax Return, but must be maintained and presumably presented to the Internal Revenue Service or Department of Labor upon request. The required information is:

1. Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% share of the premium.
2. 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.
3. In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
4. Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from September 1, 2008, to December 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
5. Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage.
6. A record of the social security numbers 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.
7. Other documents necessary to verify the correct amount of reimbursement.

Earlier posts have discussed the COBRA premium subsidy in further detail. Click the COBRA tag for more information or contact Vision Payroll.

According to the US Department of Labor, in the week ending March 21, the advance figure for seasonally adjusted initial claims was 652,000, an increase of 8,000 from the previous week’s revised figure of 644,000. The 4-week moving average was 649,000, a decrease of 1,000 from the previous week’s revised average of 650,000.

The advance seasonally adjusted insured unemployment rate was 4.2% for the week ending March 14, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.1%.

The advance number for seasonally adjusted insured unemployment during the week ending March 14 was 5,560,000, an increase of 122,000 from the preceding week’s revised level of 5,438,000. The 4-week moving average was 5,331,250, an increase of 123,750 from the preceding week’s revised average of 5,207,500.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 4.646 million.

Do you have former employees eligible for the COBRA continuation coverage premium subsidy? Do you need to know how to enter the premiums paid so that you may claim the credit on your Form 941, Employer’s QUARTERLY Federal Tax Return? Do you have questions on how the credit will be applied? This week’s Tip of the Week guides you through all this and more.

Under the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their COBRA continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed. Earlier posts discussed the requirements and mechanics of the credit. Click the COBRA tag to learn more. This post assumes that you have made eligible premium payments and now need to initiate the process to claim the credit on Form 941.

First, contact Vision Payroll and ask for a full overwrite. You should plan for us to do this immediately after your payroll has been processed. Locate the former employee for whom the payment was subsidized and select the employee’s Manual Adjustment Screen. If the premiums subsidized were for a single plan, choose code FS, otherwise choose code FM. Enter the 65% subsidy as a credit amount, e.g., -200.00. Key 0.00 in the Check Amount field—this is a mandatory step. Save the adjustment and you’re finished.

If the credits are less that that payroll’s Form 941 tax deposit, Vision Payroll will deposit the net amount. If the credit is greater than that payroll’s Form 941 tax deposit, Vision Payroll will reduce the amount of the claimed credit to exactly offset that payroll’s deposit and carry-forward any balance to the next payroll to reduce that payroll’s deposit.

Contact Vision Payroll if you have any questions on the COBRA continuation coverage premium subsidy.

The American Recovery and Reinvestment Act of 2009, also known as ARRA, increased the monthly exclusion for transit passes and commuter highway vehicles under §132 of the Internal Revenue Code of 1986 (IRC). For January and February 2009, the maximum excludible amount of qualified transportation fringes was $230 per month for qualified parking and $120 per month for transit passes and commuter highway vehicles. Starting in March 2009, the excludible amount for transit passes and commuter highway vehicles increased to $230 per month. The qualified parking fringe remained the same. The amounts will be indexed for inflation for 2010. The fringe benefits can be either paid by the employer and excluded from income or paid from funds contributed on a tax-free basis to a transit reimbursement account as part of a plan established by employers. Contact Vision Payroll if you have any questions on qualified transportation fringe benefits under IRC §132.

The third and final deadline applicable to federal filing of Forms W-2 is approaching. The first deadline, January 31, 2009, was the deadline for providing copies of Form W-2 to employees. The second deadline, February 28, 2009 (extended to March 2, 2009 because of the weekend), was the deadline for filing paper copies of Forms W-3 and Forms W-2 with the Social Security Administration. The final deadline, March 31, 2009, is the deadline for electronic filing of Forms W-3 and Forms W-2 with the Social Security Administration. In addition to the later deadline, electronic filing offers the following benefits to employers:

1. It is free, fast and secure.
2. It saves time and reduces filing burden.
3. It provides an immediate receipt for proof of filing.

Vision Payroll uses electronic filing for all filing of Forms W-3 and Forms W-2 with the Social Security Administration. Contact Vision Payroll if you have further questions on these forms.

The Internal Revenue Code of 1986 as amended (IRC) provides in §106 for an exclusion from income for employer-provided health insurance that covers the employee, the employee’s spouse, the employee’s children, and the employee’s qualifying relatives. Prop. Treas. Reg. § 1.125-1(h), 22 Fed. Reg. 43937 (August 6, 2007) clarified that coverage for a former spouse who is not a dependent is not excludible from an employee’s income. Therefore, the fair market value of coverage for a former spouse is includible in an employee’s income for federal income tax purposes.

In the recently released, Working Draft Directive 09-XX, Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an Employee’s Former Spouse, the Massachusetts Department of Revenue concludes that any income required to be included in federal gross income for coverage required under Massachusetts General Laws (MGL) shall be excluded from Massachusetts gross income. Coverage may be required for former spouses under the following laws, among others: MGL c. 176G § 5A, MGL c. 32A § 11A, MGL c. 175 § 110, MGL c. 176A § 8F, and MGL c. 176B §6B. Contact Vision Payroll if you have any questions on this Working Draft Directive.