COBRA Subsidy Extended Through May 31, 2010

Employers may need to take action following the latest extension for COBRA subsidies.

Extension
Under the American Recovery and Reinvestment Act of 2009, employees who were involuntarily terminated from their jobs between Sept. 1, 2008 and Dec. 31, 2009 were eligible for a COBRA subsidy. The Dec. 31, 2009 date previously was extended to Feb. 28, 2010, and then to March 31, 2010. It has now been extended again to May 31, 2010.

Current Law
Employees who are involuntarily terminated or who experience a significant reduction in hours between Sept. 1, 2008 and May 31, 2010 are eligible for a COBRA subsidy from their employers for up to 15 months.

Tax Credit
Affected employees can elect COBRA coverage under their employers’ health plan and pay 35 percent of the cost. The employer is then eligible for a credit on line 12 of Form 941 for the remaining 65 percent. Note: The credit is not required to be claimed in the same quarter that the COBRA premiums were paid and can be claimed in a later quarter in the same calendar year.

Actions
Employers should work with their COBRA administrators to implement the new extension and issue the required notices. They should also work with their payroll advisors to ensure they are properly completing Form 941 to obtain all credits for which they are eligible.

What’s next?
Other bills are still pending in the House and the Senate that would extend eligibility for the COBRA subsidy to June 30, 2010 or Dec. 31, 2010. Elliott Davis will continue to keep you updated on the latest developments. If you have questions or need assistance, please contact us.