COBRA premium subsidy extended and expanded

On December 19, 2009, the 65% COBRA premium subsidy that was due to expire December 31, 2009 for newly terminated employees was extended. The extension adds another six months to the maximum period that the COBRA subsidy can run, and also extends the up-to-15 month COBRA premium subsidy to workers who lose their jobs during the first two months of 2010.  Under the prior law, the subsidy wasn’t available for those who lost their jobs after 2009.

The law previously applied to workers who were terminated between Sept. 1, 2008 and Dec. 31, 2009 and were eligible for COBRA continuation coverage and elected COBRA coverage.   Normally, the workers would have been responsible for 100% of the cost of the insurance premiums.  A COBRA premium subsidy of 65% of the cost of the COBRA coverage has been provided to the employee which reduces the cost of the insurance to 35% of the normal cost. Under the new, law employees terminated in Jan. or Feb. 2010 can now also qualify for the COBRA premium subsidy.

Another very important change was the length of time the employee is eligible for the subsidy.  Previously the premium subsidy would have expired nine months after the subsidy began.  This was extended to a total of 15 months by the recent legislation.

The law and the recent changes are important for employers to be aware of. Not only are there certain notification requirements that must be given to the employee, but the way the 65% subsidy is paid by the government can be complex.  Essentially, the employer continues to pay 100% of the insurance premium. The employee reimburses the employer 35% of the cost, and the remaining 65% is recouped by the employer in the form of payroll tax credits on the employer’s Form 941 and related payroll tax deposits.

Steve Trojan, CPA is owner of Complete Payroll, Inc., a Crystal Lake IL based payroll processing firm, and SMT & Associates, Inc., (www.smt-associates.com) a tax and accounting firm specializing in small business.