COBRA Premium Subsidy: More Guidance from IRS, CMS and DOL

• Deference to the Employer's Determination: The IRS will not challenge an employer's determination that an employee's termination was involuntary for purposes of the employer's entitlement to the payroll tax credit, if the determination is consistent with a "reasonable interpretation" of the statutory provisions and IRS guidance. The employer must maintain the required supporting documentation. Q&A AE-25.
• Involuntary Termination: An involuntary termination can occur where an employee is hired only for a limited period (such as a seasonal worker) and the contract expires without being renewed, where an elected official runs for reelection but is not reelected, and where an elected official is prohibited from running for reelection because of term limits. However, an involuntary termination does not occur where an elected official chooses not to run for reelection. Q&A AE-28 through -31.
• Military Service: An involuntary termination can occur where an employee who is a member of a Reserve unit or the National Guard is called to active duty. TRICARE health coverage, or eligibility for TRICARE health coverage, does not end an assistance-eligible individual's period of premium subsidy. Q&A AE-33 & -34.
• Extended COBRA Election Period: While an individual who is eligible for the extended COBRA election period must be offered coverage that is effective with the first period of coverage beginning on or after February 17, 2009, the plan or employer may allow the individual to instead elect for the COBRA coverage to be effective as of a later date. However, in that case, the nine-month limit for the premium subsidy nonetheless begins to run with the first period of coverage beginning on or after February 17, 2009 (i.e. the election of a delayed COBRA effective date will not extend the date on which eligibility for the premium subsidy will expire). In addition, the gap period (i.e., the period between the first day of the first period of coverage beginning on or after February 17, 2009, and the date elected for COBRA coverage to begin) will not be disregarded for purposes of the rules limiting preexisting condition exclusions (i.e., the gap period will be considered in determining whether a break in coverage has occurred for purposes of determining whether preexisting condition exclusions under subsequent group health coverage will apply). Q&A AE-35.
• Information Reporting: No information reporting (e.g., Form W-2, Form 1099) of the COBRA premium subsidy is required to be provided to an assistance-eligible individual or to the IRS by an employer, insurer, or multiemployer plan. Q&A RD-12.

  However, high income individuals (i.e., those who have modified adjusted gross income for the taxable year in excess of $145,000, or $290,000 in the case of a joint filing) are not eligible for the subsidy. Presumably, in that case, the affected individuals will themselves report the amount of the subsidy they received (i.e., will add the improperly received subsidy to their federal tax liability in order to repay the subsidy). States may also tax the subsidy. Look for the IRS to issue more guidance on this topic.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

Copyright 2009, Deloitte.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.