More on the COBRA Subsidy

• Notice of Changes in Eligibility: An individual who becomes eligible for other group health coverage (e.g., from a new job) or for Medicare is no longer eligible for the COBRA subsidy and must notify the COBRA health plan in writing that he or she is no longer eligible. This is the case even though the individual does not actually enroll in the other plan or Medicare. Eligibility to enroll is the determining factor. The Q&A refers to the U.S. Department of Labor web site, which contains a model form for individuals to use in this circumstance.
• Penalty for Failure to Notify: An individual who continues COBRA coverage after ceasing to be eligible for the subsidy is obligated to pay the full COBRA premium. If the individual fails to notify the COBRA plan and continues to receive the subsidy, he or she may be subject to a penalty equal to 110 percent of the subsidy that was fraudulently received. Such a penalty places the individual in a worse situation than if no subsidy had been received at all. Individuals are obligated to self-report that they are subject to the penalty by contacting the IRS.
  • Whistle Blower Form: IRS issued Form 3949A by which a person may report to the IRS that someone is suspected of possibly receiving the subsidy after they ceased to be eligible.
• Potential Tax Liability for High-Income Individuals: While the COBRA premium subsidy is not included in income, eligibility for the subsidy begins to be phased out for individuals whose adjusted gross income exceeds $125,000 (or $250,000 filing jointly). To accomplish repayment of the subsidy for which individuals were ineligible, the Federal government increases their tax liability. Only a portion is recaptured for those individuals who have an adjusted gross income between $125,000 and $145,000 (or between $250,000 and $290,000, filing jointly). Over that income amount, the full subsidy is recaptured and must be paid as an additional tax on their Federal income tax return.

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, 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.

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