By Gloria M. Chon
Under the American Recovery and Reinvestment Act of 2009, an unemployed person may be eligible to pay only 35% of his or her premiums under COBRA (Consolidated Omnibus Budget Reconciliation Act). The employer will be reimbursed for the remaining 65% through a tax credit.
Eligibility for Reduced Premiums: In order to be eligible for the reduced payments, you must meet the following criteria:
- you must be an employee who was or will be involuntarily terminated between September 1, 2008 and December 31, 2009;
- you must be eligible for COBRA as a result of the termination;
- you must in fact elect COBRA coverage (either at the time you first became eligible or under a special opportunity provided under the new law); and
- your modified adjusted gross income for the tax year in which the premium assistance is received must not exceed $145,000, or $290,000 for joint filers. (If your income was between $125,000 and $145,000, or $250,000 and $290,000 for joint filers, you may be eligible for some, but not the full, premium reductions.)
If you meet these requirements, you may pay only 35% of your COBRA premiums beginning February 17, 2009. You do not receive a payment for remaining 65%. Rather, once you pay 35% of your premiums, your premium will be considered to be paid in full. The law is not retroactive. Therefore, even if you were terminated before February 17, 2009, you may not receive a reduction for any COBRA payments owed before that date.
The subsidy also applies for a family member who is a beneficiary under your COBRA plan. The subsidy will last until the earliest of (1) 9 months; (2) eligibility for other group coverage; or (3) the date the maximum period of COBRA coverage ends.
Employers’ Duties: An employer that offers a group health plan was obligated to send a one-time notice before April 18, 2009 to all current and former COBRA beneficiaries who may qualify for the subsidy. The notice needed to include information about the beneficiary’s rights to the reduced premiums and the necessary forms to establish eligibility. Employers were also required to offer those who did not elect COBRA coverage when they first became eligible, and those who permitted their elections to expire, a special opportunity to elect COBRA so that they may become eligible for the reduced premiums. Employers who failed to send timely notices may be subject to penalties.
After paying the 65% balance of the COBRA premium, the employer is then reimbursed through an offset in its federal payroll taxes. The employer must claim the tax credit on its Employer’s Quarterly Federal Tax Return.
If you are an employee who qualifies for this subsidy and you have questions regarding your eligibility or the procedures to get reduced COBRA premium payments, or if you are an employer with questions regarding your responsibilities, please contact us for further information.
For further information regarding these matters, please contact Ms. Chon at 248.740.5689 or click here to send an email.
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