Vision Payroll

This week’s question comes from Rosa, a business owner. I paid over $5,000 in premiums for former employees who are eligible for the COBRA premium subsidy. The reduction in the federal tax deposit was only about $3,000. Why is my COBRA credit limited? Answer: 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 will limit the amount of the credit utilized to offset any particular payroll’s liability to the total of the federal tax deposit for that payroll. Credits in excess of that payroll’s federal tax deposit will be limited and the overage will be used to offset future liabilities for that quarter, unless the payroll is the last of the quarter. Contact Vision Payroll if you have any questions on the COBRA premium subsidy.

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 Additional Issues under Notice 2009-27.

The IRS indicated in Notice 2009-27 that it is aware of additional issues not addressed in Notice 2009-27. The IRS and the US Department of the Treasury are still considering these issues and may issue future guidance on them.

This concludes our summary of Notice 2009-27. 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 Comparable State Continuation Coverage.

Individuals who would otherwise be eligible under Federal COBRA may also qualify under comparable state laws that provide for continuation coverage for those who may not qualify under Federal COBRA. The fact the state plan has a different period of continuing coverage, different qualifying events, different qualified beneficiaries, or different maximum premiums generally does not mean the plan is not “comparable solely for those reasons.”

For plans subject solely to state law that require the insurer to provide continuation coverage, only the insurer may claim the premium reduction credit, even if the employer collects the reduced premium and pays the full premium to the insurer. The IRS left open the possibility that future guidance may change this conclusion.

The next topic covered will be Additional Issues. 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 Payments to Insurers under Federal COBRA under Notice 2009-27.

For plans subject to COBRA that are not multiemployer plans and for which the insurer collects the premiums directly from the qualified beneficiaries, the insurer is required to treat the payment of 35% of the premium by assistance eligible individuals as payment of the full premium, regardless of when the employer pays the remaining 65% of the premium. Failure to do so may subject the employer to the excise tax under §4980B(e)(1)(B) of the Internal Revenue Code of 1986.

The next topic covered will be Comparable State Continuation Coverage. 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 Extended Election Period under Notice 2009-27. Most of the issues covered in this topic unless otherwise indicated “apply only for purposes of Federal COBRA and temporary continuation coverage under” Federal Employees Health Benefits Program (FEHBP).

Employees who elected self-only coverage and were involuntarily terminated after August 31, 2008 and before February 18, 2009 are allowed an extended election period to elect coverage for a spouse and dependent children who are qualified beneficiaries and eligible for premium reduction.

COBRA continuation coverage begins with the first period of coverage after February 16, 2009 for coverage elected during the extended election period. For plans that require coverage to be paid for on a calendar month, March 2009 is the first period of coverage eligible for premium reduction. This is true even if the plan requires employees to pay a pro-rata portion of the February 2009 premium. If, however, the plan requires coverage to be paid for on a monthly period based on the last day of coverage, the first period of coverage could be different. Assuming the last day of coverage were October 3, 2008, the first period the employee would be required to pay for would be October 4, 2008 through November 3, 2008. The first period of coverage beginning after February 16, 2009 would be March 4, 2009 through April 3, 2009.

Employees who still had open COBRA elections as of February 17, 2009 may forego coverage under the initial election and elect only under the extended election period. Employees who do so need pay for COBRA continuation coverage for coverage periods after February 16, 2009. Employees who elect under their original COBRA election period would only be eligible for premium reduction for periods of coverage after February 16, 2009.

For most purposes, the extended election period is available only to plans subject to Federal COBRA or FEHBP. The extended election period does not apply to state plans that provide comparable coverage. State programs that allow a similar extended election would result in premium reduction for assistance eligible individuals (AEIs).

Qualified beneficiaries with health reimbursement arrangement (HRA) coverage “have access to the same level of COBRA continuation coverage as was available immediately before the qualifying event.”

AEIs that were eligible for other group coverage before February 17, 2009 but unable to enroll in group health coverage after February 16, 2009 are eligible for the premium reduction until they are eligible to enroll in another plan or until the premium reduction period ends.

A plan cannot require payment of the initial premium under the extended election period coverage “earlier than 45 days after the date on which the election of Federal COBRA under the extended election period is made for that qualified beneficiary.”

The next topic covered will be Payments to Insurers under Federal COBRA. Contact Vision Payroll if you have any questions on Notice 2009-27.

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. Plans subject to the Federal COBRA provisions must send the Notice in Connection with Extended Election Periods to any assistance eligible individual (AEI) (or any individual who would be an AEI 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 Notice in Connection with Extended Election Periods.

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 Recapture of Premium Assistance under Notice 2009-27.

A plan cannot refuse to provide premium reduction to an assistance eligible individual (AEI), even if the AEI’s income is so high that premium reduction recapture applies. Only if the AEI has notified the plan that the permanent waiver of premium reduction has been elected. An AEI notifies the employer or other entity eligible for the reimbursement by means of a signed and dated notification of permanent waiver. The waiver is permanent and regardless of actual income level in 2009 or 2010, the individual is no longer eligible for premium reduction.

The next topic covered will be Extended Election Period. 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 End of Premium Reduction Period under Notice 2009-27.

Premium reduction generally continues until the earliest of:

1. The first date the assistance eligible individual (AEI) becomes eligible for other group health coverage or Medicare coverage;
2. Nine months after the first day of the first month the premium reduction provisions apply; or
3. When the AEI is no longer eligible for COBRA continuation coverage.

Under 1. above, eligibility for group coverage is the deciding factor. An AEI who is eligible for other group health coverage but elects not to participate in the plan, eligibility for premium reduction ends. The premium reduction eligibility would not end, however, until after the end of any waiting period imposed by a new employer or spouse’s employer.

If individuals are offered retiree coverage under the same plan as the COBRA continuation coverage, the offer has no impact on eligibility for premium reduction. If individuals are offered coverage under a different plan, eligibility may be affected. If the involuntary termination leading to the COBRA coverage occurred after February 16, 2009, then the individual is not eligible for premium reduction. If the involuntary termination occurred after August 31, 2008 and before February 17, 2009, then the individual is only ineligible for continuation coverage “if the period the individual is given for enrolling extends to at least February 17, 2009.”

Coverage under a Health Reimbursement Account (HRA) that qualifies as a Flexible Spending Arrangement (FSA) under §106 of the Internal Revenue Code of 1986 (IRC) does not end the period of eligibility for premium reduction. If the HRA does not qualify as an FSA under IRC §106, then coverage under the HRA terminates eligibility for premium reduction.

Even though an individual must be terminated before January 1, 2010 to be an AEI, premium reduction may continue after December 31, 2009, depending on the first date of eligibility.

Death of a terminated employee does not end the eligibility of an otherwise qualified beneficiary spouse and dependent children.

Failure to pay the required premium for COBRA coverage by the end of any applicable grace period ends qualification for COBRA continuation coverage and also eligibility for premium reduction.

An individual currently enrolled in Medicare may become a qualified beneficiary eligible for COBRA coverage as a result of an involuntary termination, but is not eligible for premium reduction.

If an AEI fails to notify an employer of eligibility for group health coverage and continues to receive a premium reduction, the employer is not required to refund the credit taken on Form 941. An exception would be if the employer knew of the eligibility for such coverage. The AEI may be subject to a penalty of 110% of the premium reduction received, unless the failure to notify the employer was due to reasonable cause and not willful neglect.

An AEI who is eligible for premium reduction more than once may receive up to nine months of eligibility for premium reduction for each involuntary termination. The period is not extended, however, “by a second qualifying event, such as a divorce, following an involuntary termination” which qualified the individual as an AEI.

The next topic covered will be Recapture of Premium Assistance. 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 Beginning of Premium Reduction Period under Notice 2009-27.

Premium reduction begins “as of the first period of coverage beginning on or after February 17, 2009…for which the assistance eligible individual [AEI] is eligible to pay only 35 percent of the premium…and be treated as having made full payment.” A period of coverage could be a month or some shorter period for which premiums are charged by the plan. If the plan charges premiums on the first day of each month for coverage that month, the first period of coverage possible would be March 2009. There is no provision to pro-rate coverage for February 2009 for otherwise eligible individuals.

If a plan requires employees who lose coverage during a month to pay for coverage for the remainder of that month in order to be eligible for COBRA continuation coverage and an employee loses coverage after February 17, 2009, the first period of coverage is the partial month of coverage. An exception is an AEI who elected as a result of the extended election period under ARRA. Such individuals are eligible for premium reduction only for the first full month of coverage.

The next topic covered will be End of Premium Reduction Period. 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 Coverage Eligible for Premium Reduction under Notice 2009-27.

Premium reduction is available for COBRA coverage for group health plans, including vision-only and dental-only plans, but not for flexible spending arrangements or FSAs under §106(c) offered under a §125 cafeteria plan. Health reimbursement arrangements or HRAs are eligible for premium reduction even though they qualify as FSAs under §106(c). That is because they are not provided through a §125 cafeteria plan. Non-health benefits, such as group life insurance, that are not eligible for COBRA continuation coverage are also not eligible for premium reduction.

Retiree coverage that doesn’t differ from that offered to “similarly situated active employees”, whether or not the cost is the same, is also eligible for premium reduction, as long as the cost to the employee does not exceed the maximum allowable under COBRA.

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