Many employer questions were answered by the IRS regarding how to claim reimbursement for the new COBRA premium subsidy provisions contained in the American Recovery and Reinvestment Act of 2009.

According to the IRS, employers will be required to report the total premium subsidies during the quarterly IRS Form 941 reporting periods covered by the subsidy. Once an assistance-eligible individual (AEI) actually pays their 35 percent COBRA premium, only then may the employer reduce their payroll tax deposit and reporting to the IRS.

Note that employers may choose to reduce each individual payroll tax deposit by the actual premium subsidy amount, but again only after receiving the 35 percent payment from the AEI.

Quarterly reporting will occur on new lines 12a and 12b of the IRS Form 941. Line 12a will claim the amount of the premium subsidy, and line 12b will require the total number of individuals benefiting from the premium subsidy.

In addition to those two items, employers are required to keep documentation on the following in the event it is requested by the IRS:

1) Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35 percent 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 September 1, 2008, to December 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 1 individual or 2 or more individuals.

7) Other documents necessary to verify the correct amount of reimbursement.

Some very helpful Q&As are on the IRS website here.

While the COBRA provisions of the American Recovery and Reinvestment Act of 2009 have received almost all of the attention in the benefits world, a goody was buried deep within.

Starting now and continuing through 2010, the transit pass and vanpooling monthly benefit maximum is now equal to the monthly parking limit. Until ARRA, public transit and vanpooling benefits were pegged at no more than $120 per month. With ARRA, from March 1, 2009 through December 31, 2010, the public transit and vanpooling maximum benefit is set at $230 per month, the same as the maximum parking benefit.

Both the House and Senate have now approved the American Recovery and Reinvestment Act of 2009 (“ARRA”). President Obama is expected to sign the legislation on February 17th.

The COBRA provisions in the Act are now finalized. The age 55 or 10 years of service requirement providing COBRA continuation coverage until Medicare eligibility has been dropped from the bill.

However, the subsidy provisions have remained. Thus, there is now a 65 percent subsidy, advanced by the employer or plan sponsor and then recouped via a credit against payroll tax submissions. The subsidy is available to eligible individuals for up to nine months.

To be eligible for a subsidy, all of the following must occur:

1) The employee must have been involuntarily terminated on or after September 1, 2008 and before January 1, 2010. Since the Act does not adequately define involuntary termination, we believe it covers not only a laid-off employee but one who is fired as well (just not for gross misconduct).

2) The qualifying individual must have annual taxable income of less than $125,000 for an individual or $250,000 for a couple in order to receive (and be allowed to keep) the full subsidy. There is a gradual phaseout of the subsidy allowance for AGI between $125,000 and $145,000 for an individual, and between $250,000 and $290,000 for a couple. If such an individual receives a subsidy and is later determined to not meet the income qualification requirements, the subsidy must be repaid in whole or in part via an additional tax liability on their 2009 or 2010 income tax filing.

3) In a change from “regular” COBRA coverage, an eligible individual can elect a lesser amount of coverage if it is offered by the employer. That is, if the employer offers one or more other health plans that cost less premium, the COBRA qualified beneficiary can elect that plan instead. This does not apply to dental or vision-only plans, counseling plans, health care flexible spending accounts or HRAs. It does however apply to health plans. Once a qualified beneficiary makes such a decreased election, that new benefit becomes COBRA-ized, and until another open enrollment period the qualified beneficiary may not change their coverage level.

4) There is a new notice requirement relating to this subsidy. First, all newly COBRA eligible participants who are involuntarily terminated must be given a notice outlining the subsidy provisions. Second, a new notice must be sent out to any employee who was involuntarily terminated between September 1, 2008 and now re-offering a new COBRA election, along with notice of the subsidy provisions. That second category of noticed employees will then have a new 60 day window in which to elect COBRA coverage back to the date of the involuntary termination, and in which to receive the subsidy prospectively only. While this does provide the proverbial “second bite of the apple”, barring substantial medical claims after that employee’s prior declination of COBRA coverage, we do not expect many employees to take advantage of this second chance.

We have produced a “For Your Benefit” newsletter detailing many of these items and more. Since all plan sponsors subject to COBRA will be required to adopt these new processes, we will keep you informed.