COBRA-related Provisions
COBRA Insurance Continuation
Under a law known as “COBRA,” an employee (or an employee’s family member) whose group health coverage has been terminated has the option of continuing the coverage by paying the employer the full amount of the premium (plus a small administrative fee). The employee (or other eligible individual) generally has the right to continue this coverage for at least 18 months. (Some exceptions apply.)
The 2009 Act provides that an individual who has been involuntarily terminated (and any qualified beneficiary of that individual) is required to pay only 35% of the premium to continue COBRA coverage under a group health plan for up to nine months.
The employer (or other entity to which the COBRA premium is payable) must pay the remaining 65%. However, the employer is reimbursed for the amount of the COBRA premium assistance it pays on the individual’s behalf by claiming a credit against any federal income-tax or FICA withholding taxes it owes on wages paid. If the reimbursable amount is more than the payroll tax liability, the IRS will reimburse the employer directly. The COBRA premium subsidy generally is not taxable to the participant.
Participants whose modified AGI for the same year in which they receive COBRA premium assistance exceeds $145,000 ($290,000 for joint filers) will have to repay the premium subsidy to the government through a recapture tax. For those with modified AGI between $125,000 and $145,000 (between $250,000 and $290,000 for joint filers), the amount of the subsidy for the taxable year that must be recaptured is reduced proportionately. A high-income individual eligible for COBRA continuation coverage may make a permanent election to waive the right to the premium subsidy for all periods of coverage to avoid being subject to the recapture tax.
The new provision applies to qualifying individuals who become eligible for COBRA continuation coverage anytime from September 1, 2008, through December 31, 2009. Workers who were involuntarily terminated between September 1, 2008, and the date of the 2009 Act’s enactment, and who failed to elect COBRA continuation at the time due to its unaffordability, will have an additional 60 days after notice is provided to elect COBRA and receive the subsidy. Additional COBRA notice and reporting requirements are included in the new law.
Introduction | Individuals | Business | COBRA | Energy Tax Incentives |
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