IRS Issues More Q&As on COBRA and ARRA
Information from www.infinisource.net

The IRS recently posted additional information on how to administer the complexities of the COBRA subsidy that was created by the American Recovery and Reinvestment Act of 2009 (ARRA).

 

The IRS categorized the Q&As on its website into four areas:

• Administration and eligibility
• Reporting and documentation
• Form preparation
• Taxability and recapture (no new Q&As)

 

Administration and Eligibility

 

If an employer fails to continue work for a seasonal employee after the initial period ends, this is an involuntary termination of employment if the seasonal employee was otherwise willing and able to continue work. An elected official who is voted out of office or whose term expires because of term limits experiences an involuntary termination. However, the decision not to run for reelection would make it a voluntary termination. Military leave is always an involuntary termination of employment, even if the employer treats it as a leave of absence.

 

The IRS will not challenge an employer determination that termination was involuntary as long as it is documented. TRICARE eligibility does not terminate the subsidy. If the Qualified Beneficiary is paying for COBRA through a Health Reimbursement Arrangement (HRA), that is considered an employer-subsidized payment and there is not a payroll tax offset available.

 

For special elections under ARRA, an employer can allow an assistance eligible individual (AEI) to start coverage later than the "first period of coverage beginning on or after 2/17" (i.e., March 1 in most cases). In such a circumstance, though, the period between the law-mandated date (i.e., March 1 in most cases) and the new effective date does count toward the 63-day gap for HIPAA creditable coverage purposes.

 

Reporting and Documentation

 

There is no W-2 or 1099 reporting requirement for individuals receiving the ARRA subsidy. If two or more companies are covered under the health plan in a controlled group situation, only the company that is the AEI’s former employer can claim the payroll tax offset.

 

Form Preparation

If an employer has appointed an agent to file payroll tax returns and make payroll tax deposits and payments on its behalf, any payroll tax credit to which the employer  is entitled should be claimed on the payroll tax return filed by the agent. Similarly, any payroll tax deposits and payments made on behalf of an employer should be reduced by the amount of the credit.

 

Infinisource continues to keep abreast of the latest developments related to ARRA and COBRA. For information on our COBRA webinars and seminars available in your area, please go to the Seminars/Webinars section of our website at www.infinisource.net