Vision Payroll

The American Recovery and Reinvestment Act of 2009 (the Act) made changes to continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA. Here are five fast facts on the changes related to employees:

1. The law became effective February 17, 2009 and applies to qualifying events occurring after August 31, 2008 and before January 1, 2010.
2. Involuntarily separated workers who elected COBRA continuation health coverage are only required to pay thirty-five percent of the required premiums.
3. Eligible individuals who did not elect COBRA coverage because it was unaffordable have sixty days to elect COBRA coverage.
4. The subsidy phases out for individuals with modified adjusted gross income over $125,000 and when modified adjusted gross income exceeds $145,000 individuals are no longer eligible. Those numbers increase to $250,000 and $290,000 for taxpayers filing joint returns.
5. The subsidy may last for up to nine months.

Over the next several days, Vision Payroll will be posting additional articles on implementing the changes to COBRA continuation coverage required by the Act as well as other changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

This week’s question comes from Doug, head of HR. I heard that the new tax law will impact employees eligible for COBRA. How does the American Recovery and Reinvestment Act of 2009 (the Act) change COBRA continuation health coverage? Answer: Under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, certain former employees are allowed to continue health care coverage under their former’s employer’s group plan. The former employees must pay the cost of the health care premiums.

The Act made significant changes to COBRA continuation coverage. Under the Act, certain covered employees are required to pay only thirty-five percent of the premiums and their former employers must pay the remaining sixty-five percent. Employers may claim a credit on Form 941, Employer’s QUARTERLY Federal Tax Return, for the premiums paid for eligible employees.

The Internal Revenue Service recently released an updated Form 941 to reflect this law change and will soon release other updated forms, such as Form 941-X Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund.

Over the next several days, Vision Payroll will be posting additional articles on implementing the changes to COBRA continuation coverage required by the Act as well as other changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.