COBRA Subsidy Extension

Under the American Recovery and Reinvestment Act (ARRA) of 2009, employers are required to provide a 65% subsidy to assistance-eligible individuals for their COBRA health care coverage premium. On December 19, 2009, President Obama signed the COBRA subsidy extension into law.

Three key things you should know about the extension:

1) This subsidy has been extended two months and now will apply to employees who have been involuntarily terminated through February 28, 2010.

2) The maximum eligibility period has been extended from nine months to fifteen months.

3) Eligibility for the subsidy is based on the date of the qualifying event (i.e., employment termination), not the date the individual becomes eligible for COBRA continuation coverage.

Possible Action Required:
If you terminate an employee and that employee elects to use COBRA anytime within 2010, the 65% premium subsidy must be claimed on Form 941 for either the 2010 quarter in which it was received or on later quarters in 2010. Please note it must be claimed in 2010.

About the COBRA Subsidy
The COBRA subsidy provision of the ARRA provides a 65% federal government subsidy of COBRA continuation coverage premiums for involuntarily terminated employees. These employees may be eligible if involuntarily terminated between September 1, 2008 and February 28, 2010.

What does this mean to you?
If involuntarily terminated employees elect to participate in COBRA and pay 35% of the COBRA premium you are now required to pay the remaining 65%. You will be reimbursed for the full 65% as a credit against your federal payroll taxes (federal income tax deposits). This provision requires that you inform all eligible employees of the 65% subsidy even if they previously rejected COBRA coverage at the time of termination. Paycor recommends that you consult your attorney or 3rd party COBRA administrator if you have specific questions about which employees are eligible or your additional responsibilities within this provision.

How is Paycor responding to help you?
Paycor will apply your COBRA subsidy credit to your federal payroll tax (941) deposits. You will observe this credit on your Cash Requirement report and Paycor will reduce your impound up to the amount of the 941 liability. 

What do you need to report to Paycor?
You can now enter your own COBRA premiums within your payroll application. Simply add a manual check for the terminated employee and enter the 65% premium that you already paid under tax code ZZCOB. Your payroll specialist can help you set up the ZZCOB tax code to get you started.

Clients who phone or fax your payroll can continue to provide your payroll specialist with a list of eligible employees and the amounts of the 65% COBRA premium you already paid for which you would like to apply for credit. These credits will be entered with your regularly scheduled payroll run. Click here to download a COBRA Credit Worksheet to help you organize your information to submit to your Paycor Payroll Specialist.

Paycor recommends that you maintain proper records as defined by the IRS, including receipts from your terminated employees with the date and amounts of their 35% share of the premium payment made. Paycor does not need copies of this documentation. To learn more about the IRS record keeping requirements please go to www.irs.gov and search "COBRA records".

Paycor continues to work closely with the IRS and other industry associations to stay informed of the latest developments within the ARRA and other proposed legislation. You have our assurance that our systems will be updated to ensure your compliance anytime new payroll and tax changes are introduced.  We also intend to keep you informed as changes are announced or become effective.

If you have additional questions, please email ARRAquestions@paycor.com or contact your Payroll Specialist.