IRS Explains Employers’ 2009 Payroll Tax Credit for Subsidizing COBRA Premiums for Terminated Employees.

On February 26, 2009, the Internal Revenue Service released information about how employers may claim credits against their quarterly payroll tax payments in order to subsidize continued medical insurance of terminated employees under COBRA pursuant to the American Recovery and Reinvestment Act of 2009. According to the IRS, “Form 941, Employer’s Quarterly Federal Tax Return, will also be sent to about 2 million employers in mid-March. The form is used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009.” The revised instructions for Form 941 will “explain how to complete lines 12a and 12b, which address the COBRA premium assistance payments.”

The IRS also announced that “[e]mployers must maintain supporting documentation for the credit claimed. This includes:
• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.”

Additional information is available from the IRS at http://www.irs.gov/newsroom/article/0,,id=204505,00.html, http://www.irs.gov/newsroom/article/0,,id=204709,00.html, and http://www.irs.gov/newsroom/article/0,,id=204708,00.html.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.