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IRS confirms no information-reporting requirement for COBRA subsidy

Employers will not need to report temporary COBRA premium assistance to eligible individuals on an information return or Form W-2, an IRS spokesperson told CCH on April 24. Recent news reports had indicated that the Service would not require information reporting. The IRS intends to update frequently asked questions (FAQs) on its website to reflect this treatment, the spokesperson added.

Subsidy. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (2009 Recovery Act) provided a subsidy for COBRA continuation coverage for individuals and certain family members. The individual must be eligible for COBRA continuation coverage between September 1, 2008, and December 31, 2009, and elect coverage when first offered or during an extended election period. The COBRA election must relate to an involuntary termination of employment between September 1, 2008, and December 31, 2009.

The 2009 Recovery Act allows eligible individuals to pay 35 percent of the cost of COBRA continuation coverage and be treated as paying the full premium. Employers (and in some cases insurers and other entities) pay the remaining 65 percent of the premium. The subsidy is generally available for nine months.

Payroll tax credit. Employers recover their share of the premium through a credit against payroll taxes. The IRS has instructed employers to use Form 941, Employer's Quarterly Federal Tax Return, which is the only means to claim a credit and be reimbursed for the COBRA subsidy.

Documentation. Although there is no information-reporting requirement, entities that claim the credit must maintain records of the payments and supporting documentation. This information should describe, among other things, the covered individual's involuntary termination, eligibility for the COBRA subsidy and the dates and amounts of the individual's 35-percent payments. Insured plans should maintain proof of the premium amount and proof of coverage to eligible individuals.

Appeals. If an individual is denied COBRA premium assistance, he or she can appeal to the U.S. Department of Labor (DOL), Kim Wilcoxon, an employee benefits practitioner at Thompson Hine, LLP, Cincinnati, told CCH. The 2009 Recovery Act requires the DOL to make a determination within 15 days. "DOL's decision is entitled to deference," Wilcoxon explained.

The DOL will process appeals related to private-sector employer plans subject to ERISA's COBRA provisions. The U.S. Department of Health and Human Services will handle appeals for federal, state and local governmental employees, as well as appeals related to group health insurance coverage provided under state continuation coverage laws.

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