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. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Assistance Eligible Individual (AEI) under Notice 2009-27.

In order to be an AEI, an individual’s job loss must result from an involuntary termination after August 31, 2008 and before January 1, 2010. It is irrelevant when the loss of coverage under the group plan happens, the involuntary termination must occur during that period. The individual must be eligible for continuation coverage at any point during that period and must elect COBRA continuation coverage. Therefore, an employee may be terminated during the eligibility period, but still not an AEI since the individual’s coverage doesn’t terminate until after December 31, 2009.

A qualified beneficiary is an individual covered under the group health plan on the day before the involuntary termination. There are exceptions in the case of children born to or adopted by covered employees during COBRA continuation coverage or in some situations where an individual was wrongfully denied continuation coverage.

If an employer provides health coverage to terminated employees on the same terms as it provides to active employees as part of severance benefits to terminated employees, the loss of coverage does not occur until the employer-provided coverage is no longer on those terms. If the employer considers the payment for the coverage for the employee “to be the provision of COBRA continuation coverage on behalf of the involuntarily terminated individual,” then the loss of coverage occurs the day before the provision of COBRA continuation coverage begins.

Assume an individual is involuntarily terminated on November 15, 2009 with normal coverage continued through the end of November. If six months health coverage is included as part of the severance benefits, the loss of coverage occurs May 31, 2010 and the individual cannot be an AEI. If the employer considers the payment to be payment of COBRA benefits on behalf of the employee, the loss of coverage occurs November 30, 2009, and the employee could become an AEI.

Similarly, under federal COBRA coverage, if there is no provision for an optional extension of required periods under §4980B(f)(8) of the Internal Revenue Code of 1986 (IRC), the loss of coverage is deemed to occur on November 15, 2009, the date of involuntary termination. An optional extension of required periods under IRC §4980B(f)(8) would result in loss of coverage being deemed to occur on May 31, 2010 (not May 31, 2009 as indicated in the answer to question 14 in Notice 2009-27).

Involuntary termination of an employee following another qualifying event generally does not qualify the qualified beneficiary from the first event to be an AEI. For example, if an employee is divorced after August 31, 2008 and before January 1, 2010 (a more inclusive period than indicated in Notice 2009-27) resulting in a loss of health coverage for the spouse and the spouse elect COBRA coverage, the later involuntary termination of the employed individual does not allow the spouse to be an AEI since the qualifying event was the divorce, not the involuntary termination.

An employer may offer continuation coverage on a voluntary basis that is not required under federal COBRA or similar state laws as defined in ARRA. An employee electing coverage under such a plan cannot be considered an AEI.

An individual may become an AEI more than once and is eligible for up to nine months of premium reduction for each involuntary termination.

The fact that an otherwise eligible individual does not elect COBRA coverage until after December 31, 2009, does not necessarily disqualify the individual from eligibility as an AEI, as long as the COBRA continuation coverage begins after August 31, 2008 and before January 1, 2010.

An employee’s death is not considered an involuntary termination and therefore a deceased employee cannot be an AEI.

The next topic covered will be Calculation of Premium Reduction. Contact Vision Payroll if you have any questions on Notice 2009-27.

The Internal Revenue Service (IRS) 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. Vision Payroll provided an overview of Notice 2009-27 when it was first issued. Today we will be reviewing Involuntary Termination under Notice 2009-27.

According to the IRS, “involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The facts and circumstances surrounding each termination will determine if a termination is involuntary. The IRS does clarify that the involuntary termination is from employment, not health coverage. Therefore, if someone is involuntarily terminated from a health plan of a spouse due to divorce, the terminated individual does not qualify for the premium reduction.

The following examples are generally considered involuntary terminations:

1. Employer’s failure to renew a contract if the employee was willing and able to provide services under similar terms and conditions
2. Employee-initiated termination due to “employer action that causes a material negative change” for the employee
3. Employee resignation when the employee had knowledge that the employer was about to terminate the employee
4. Employee retirement when the employee had knowledge that the employer was about to terminate the employee
5. Employee voluntary termination when the employer had reduced hours resulting in “a material negative change” for the employee
6. Lay-off with right of recall
7. Temporary furlough period
8. Employer termination of employee’s job while employee is out due to illness
9. Employer termination of employee’s job while employee is on disability leave
10. Involuntary termination for cause, although gross misconduct may result in the employee’s disqualification for federal COBRA benefits
11. Resignation of an employee due to a “material change in the geographic location of employment for the employee”
12. Employer initiated lockouts
13. An employee-elected termination in acceptance of a severance package when the employer indicates that a certain number of employees must accept the package or layoffs will result

The following examples are generally not considered involuntary terminations:

1. A reduction in hours if the reduction is not to zero, but see 5 above for exception
2. Absence from work due to illness
3. Absence from work due to disability
4. Death of an employee
5. Retirement, but see 4 above for exception
6. Work stoppages due to strikes imitated by employees or their representatives

The next topic covered will be Assistance Eligible Individual or AEI. Contact Vision Payroll if you have any questions on Notice 2009-27.

Nonfarm payroll employment continued to decline sharply in March (-663,000), and the unemployment rate rose from 8.1% to 8.5%, the Bureau of Labor Statistics of the US Department of Labor reported recently. Since the recession began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. In March, job losses were large and widespread across the major industry sectors.

In March, the number of unemployed persons increased by 694,000 to 13.2 million, and the unemployment rate rose to 8.5%. Over the past 12 months, the number of unemployed persons has grown by about 5.3 million, and the unemployment rate has risen by 3.4 percentage points. Half of the increase in both the number of unemployed and the unemployment rate occurred in the last 4 months.

The unemployment rates continued to trend upward in March for adult men (8.8%), adult women (7.0%), whites (7.9%), and Hispanics (11.4%). The jobless rates for blacks (13.3%) and teenagers (21.7%) were little changed over the month. The unemployment rate for Asians was 6.4% percent in March, not seasonally adjusted, up from 3.6% a year earlier.

Among the unemployed, the number of job losers and persons who completed temporary jobs increased by 547,000 to 8.2 million in March. This group has nearly doubled in size over the past 12 months.

The number of long-term unemployed (those jobless for 27 weeks or more) rose to 3.2 million over the month and has increased by about 1.9 million since the start of the recession in December 2007.

This week’s question comes from Toni, an office manager. In February, you wrote that implementation of the new Form I-9, Employment Eligibility Verification, had been delayed. When do I need to start using the new Form I-9? Answer: The United States Citizenship and Immigration Services (USCIS), a component of the United States Department of Homeland Security (DHS), has released the revised Form I-9, and its Spanish equivalent, Formulario I-9, Verificación de Elegibilida para el Empleo. Employers are required to use the revised forms starting today, April 3, 2009. The list of documents eligible for the employment verification process has also been revised, including the elimination of expired documents as acceptable verification documents.

Contact Vision Payroll or click the Form I-9 tag if you have any questions on the revised Form I-9.

According to the US Department of Labor, in the week ending March 28, the advance figure for seasonally adjusted initial claims was 669,000, an increase of 12,000 from the previous week’s revised figure of 657,000. The 4-week moving average was 656,750, an increase of 6,500 from the previous week’s revised average of 650,250.

The advance seasonally adjusted insured unemployment rate was 4.3% for the week ending March 21, an increase of 0.1 percentage point from the prior week’s unrevised rate of 4.2%.

The advance number for seasonally adjusted insured unemployment during the week ending March 21 was 5,728,000, an increase of 161,000 from the preceding week’s revised level of 5,567,000. The 4-week moving average was 5,496,500, an increase of 163,500 from the preceding week’s revised average of 5,333,000.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 4.700 million.

The Internal Revenue Service (IRS) has released a revised version of Publication 919, How Do I Adjust My Tax Withholding?, to reflect changes from the Making Work Pay credit implemented as part of the American Recovery and Reinvestment Act of 2009 (ARRA). The IRS was concerned that two-earner families, employees with multiple jobs, and pension recipients may be under-withheld due to the changes in withholding tables mandated by ARRA. As a result, taxpayers could owe several hundred or thousands of dollars when filing their 2009 tax returns next year. The IRS recommends that taxpayers use new Worksheet 12, Making Work Pay Credit Worksheet (Including Special Credit for Government Retirees), from Publication 919 to adjust their withholding if necessary.

Contact Vision Payroll if you have questions on this topic.

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.