Guest Article

(From the January 19, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Clarifies Employer COBRA Tax Credit for Prior-Year Coverage

IRS has clarified when an employer may claim the tax credit for the 65 percent COBRA premium subsidy in the case where an assistance eligible individual pays a reduced 35 percent COBRA premium in 2010 for coverage in 2009.

Consistent with the Instructions to Form 941 - Employer's Quarterly Federal Tax Return - the IRS confirmed that, where an assistance eligible individual pays the 35 percent reduced COBRA premium in 2010 for coverage in 2009, the employer may claim the 65 percent credit on Form 941 only in the quarter in 2010 in which it receives the individual's 35 percent premium or a later quarter in 2010. Instructions to Form 941 state that the employer should, "Take the COBRA premium assistance credit on this line only after the assistance eligible individual's 35% share of the premium has been paid."

Some considered the IRS position to require an employer to claim the tax credit for the year of the COBRA coverage, even if the premium payment was made in the following year. This would have required employers to file a corrected Form 941 to claim the subsidy if the employer received in 2010 a 35 percent COBRA premium from an assistance eligible individual that related to the prior year's coverage.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. 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 2010, Deloitte.