New COBRA Subsidy and IRS Form 941 Filing

In order to claim a tax credit for COBRA subsidies paid, employers must complete two new items on their quarterly Form 941 returns. The 65% nine-month COBRA subsidy was provided by the American Recovery and Reinvestment Act of 2009, enacted on February 17, for employees and their families if the employee loses his or her job involuntarily on or after September 1, 2008 and before January 1, 2010. An individual eligible for this subsidy is known as an assistance eligible individual, or AEI, under the Act.

An AEI pays 35% of the 102% COBRA premium, and the employer initially pays the 65% subsidy. The federal government reimburses the employer for the subsidy through a tax credit, which is claimed by completing the two new items on the quarterly Form 941 return. Here are some suggestions for completing the new information:

On line 12a – COBRA premium assistance payments – employers should report the COBRA premium assistance payments they have made for AEIs who have paid their 35% reduced premiums. This amount should include 65% of the total COBRA premiums for AEIs without regard to the 35% reduction. For self-funded plans, the premium assistance payments are treated as having been made for each AEI who pays 35% of the COBRA premium.

On line 12b – Number of individuals provided COBRA premium assistance reported on line 12a – employers should enter the total number of individuals provided COBRA premium assistance payments reported on line 12a and count each AEI who paid a reduced COBRA premium in the quarter as one individual, whether or not the reduced premium was for insurance that covered more than one AEI.

Although the IRS does not require that supporting documentation be submitted with Form 941, employers claiming the credit must maintain such documentation, including the following:

• Receipt of the AEI’s 35% share of the premium, including date and amount
• Attestation of involuntary termination between September 1, 2008 and December 31, 2009 for each covered employee whose involuntary termination is the basis for eligibility for the subsidy
• Proof of each AEI’s eligibility for COBRA at any time between September 1, 2008 and December 31, 2009 and the election of COBRA coverage
• Record of social security numbers of all covered employees, the amount of the subsidy reimbursed for each covered employee, and whether the subsidy was for one individual or two or more individuals
• Documents necessary to verify the correct amount of reimbursement
• Copy of the invoice from the insurer and proof of timely payment of the full premium to the insurer (for insured plans)
• Proof of the premium amount and proof of the coverage provided to the AEIs (for self-funded plans)

For questions regarding the new COBRA subsidy or Form 941, call the ASR Health Benefits COBRA Administration Department at (616) 464-6023.