Vision Payroll

This week’s question comes from Renai, an office manager. We don’t have enough employees to be covered under federal COBRA laws. We are covered by Cal-COBRA. Are employees covered under Cal-COBRA eligible for the ARRA subsidy? Answer: Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntary 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 assistance provided. Cal-COBRA is a California law that applies to employers and group health plans that cover from 2 to 19 employees. Eligible employees may elect to continue their coverage for 36 months. Since ARRA applies to both federal COBRA and similar state laws, the California EDD recently confirmed that employees who have elected Cal-COBRA coverage who meet the ARRA requirements are eligible to receive the subsidy. Contact Vision Payroll if you have any questions on Cal-COBRA.

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 Calculation of Premium Reduction under Notice 2009-27.

The premium amount used to calculate the 35% share that the employee must pay is the amount that would be charged to the Assistance Eligible Individual (AEI) if the AEI were not an AEI. If the employer charges 102% of the premium as allowed by COBRA, the 35% paid by the AEI would be 35% of the 102% amount. If, however, the employer subsidizes any or all of that premium, the 35% share is based on that reduced premium. Payments by parties other than the employer, including but not limited to parents, guardians, state agencies, or charities, are counted towards the 35% payment required of the individual.

The following table provides amounts based on the example descriptions that follow the table:

Example 1: The employer normally requires COBRA eligible individuals to pay $500 per month. Credit based on $500 premium.

Example 2: Severance package requires payment of $200 per month for a period of six months, the same as is required of active employees. Employer considers $800 balance as employer contribution towards employee’s required COBRA payment during the COBRA continuation period. Credit based on $200 premium.

Example 3: Example 2 facts, except that after six months, the employer requires payment of the full $1,000 per month. Credit based on $1,000 premium.

Example 4: Same as example 2, except that the employer considers the COBRA continuation period to begin after the six month severance period. No premium allowed since COBRA coverage not applicable.

Example 5: Example 4 facts, except that the employer considers the COBRA continuation period to begin after the six month severance period. Credit based on $1,000 premium for the next nine months.

Example 6: Severance package requires no payment for a period of six months, even though active employees are required to pay $200 per month. Employer considers the continuation period to begin on date of involuntary termination. No credit allowed since no premium required.

Example 7: Example 6 facts, except the employer requires payment of $1,000 per month for months seven, eight, and nine. Credit based on $1,000 premium.

Example 8: Example 7 facts, with employer continuing to require $1,000 payment for remainder of COBRA coverage period. No credit since subsidy period of nine months has elapsed.

Example 9: Example 6 facts, except employer considers no loss of coverage until after six months (end of severance period). No credit allowed since no premium required.

Example 10: Example 9 facts, employee elects COBRA coverage after severance period. Credit based on $1,000 premium, allowable for a period of up to nine months.

Example 11: Employer had charged $500 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month. Credit based on $1,000 premium.

Example 12: Employer had charged $400 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month, but also provides a $600 taxable severance benefit to AEIs. Credit based on $1,000 premium.

Example 13: Employer had charged $400 per month prior to March 1, 2009 for COBRA continuation coverage, even though 102% of premium would have been $1,000. Effective March 1, 2009, employer charges $1,000 per month, but also provides a $350 reimbursement to employees that is excludible from income under IRC §106. No credit allowed since no premium required.

Example 14: Employer charges $1,000 per month for self-plus-two-or-more dependents. The covered individual has two assistance eligible individuals as dependents and one individual who is not an assistance eligible individual. Since there is no additional cost to providing the coverage for the ineligible individual, the credit is based on the entire $1,000 premium.

Example 15: Example 14 facts, except that individual has only one assistance eligible individual as a dependent and one individual who is not an assistance eligible individual. Employer charges $800 per month for self-plus-one dependent. Credit based on $800 premium. Employee pays 35% of $800 plus the full $200 for the non-eligible individual.

Example 16: An AEI has self-only coverage that would normally cost $450. With the subsidy, the employee pays $157.50 and the employer is eligible for a subsidy of $292.50. While still eligible for the premium subsidy and during an open enrollment period, the AEI adds a spouse and dependent child to coverage, resulting in a total monthly premium of $1,000. The spouse and child are not assistance eligible individuals since they were not covered under the plan on the day before the involuntary termination. Credit based on $450 premium. Employee pays 35% of $450 plus the full $550 for the non-eligible individuals.

This section also clarifies that the premium reduction does not apply to portions of premiums for individuals who are not qualified beneficiaries, even if the coverage is allowed under the employer’s plan or required by state law. Therefore, same-sex spouses or civil union partners will generally not be eligible for coverage as qualified beneficiaries. Furthermore, covered non-dependent children will not qualify as qualified beneficiaries. This is so even if state law requires the AEI to provide coverage to these children.

Finally, if an individual changes coverage from the coverage in place before termination to a new, more expensive coverage, the premium reduction can apply to the new, higher premium.

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

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.

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.

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.

This week’s question comes from John, an HR Director. We need to send COBRA notices to terminated employees. Are model notices available for the COBRA premium reduction? Answer: The American Recovery and Reinvestment Act of 2009 (ARRA) made changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation health coverage. In certain situations, employers must pay 65% of the continuation premium and take a credit on Form 941, Employer’s QUARTERLY Federal Tax Return. The US Department of Labor recently announced the availability of model notices for use in four different situations.

The first notice is the General Notice (full version). Plans subject to the Federal COBRA provisions must send the General Notice to all qualified beneficiaries, not just covered employees, who experienced a qualifying event at any time from September 1, 2008 through December 31, 2009, regardless of the type of qualifying event, AND who either have not yet been provided an election notice or who were provided an election notice on or after February 17, 2009 that did not include the additional information required by ARRA. This full version includes information on the premium reduction as well as information required in a COBRA election notice.

The second notice is the General Notice (abbreviated version). The abbreviated version of the General Notice includes the same information as the full version regarding the availability of the premium reduction and other rights under ARRA, but does not include the COBRA coverage election information. It may be sent in lieu of the full version to individuals who experienced a qualifying event during on or after September 1, 2008, have already elected COBRA coverage, and still have it.

The third notice is the Alternative Notice. Insurance issuers that provide group health insurance coverage must send the Alternative Notice to persons who became eligible for continuation coverage under a State law. Continuation coverage requirements vary among States, and issuers should modify this model notice as necessary to conform it to the applicable State law. Issuers may also find the model Alternative Notice or the abbreviated model General Notice appropriate for use in certain situations.

The final notice is the Notice in Connection with Extended Election Periods. Plans subject to the Federal COBRA provisions must send the Notice in Connection with Extended Election Periods to any assistance eligible individual (or any individual who would be an assistance eligible individual if a COBRA continuation election were in effect) who:

1. Had a qualifying event at any time from September 1, 2008 through February 16, 2009; and
2. Either did not elect COBRA continuation coverage, or who elected it but subsequently discontinued COBRA.

This notice includes information on ARRA’s additional election opportunity, as well as premium reduction information. This notice must be provided by April 18, 2009.

Contact Vision Payroll if you have any questions on the COBRA model notices.