Hello, I’m Brian Best, program manager for Collection Policy, Employment Tax. This is a reenactment of the IRS’s National Phone Forum delivered in July 2009. The phone forum is titled “IRS Collection Process: What are your options?”, and this is part one of a three-part audio series.

The phone forum was designed to provide information – not a specific determination for your situation. The full presentation covered information about:

• What’s new under the COBRA legislation;
• Installment agreements;
• Form 1099-OID, Original Issue Discount; and
• Offers in compromise

This recorded segment will cover COBRA legislation. You'll find the other two audio recordings from the phone forum on our Web site IRS.gov.

First, we’ll cover the American Reinvestment and Recovery Act: COBRA Premium Assistance.

By way of background, the American Reinvestment and Recovery Act of 2009, or ARRA, became effective February 17, 2009. ARRA included a change to the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, better known as COBRA, that affects many employers. It provides a 65 percent subsidy, in the form of a credit against payroll taxes, for COBRA premiums paid on behalf of an assistance-eligible individual.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at the group rate that employers pay.

Who is eligible?

An assistance-eligible individual is a qualified beneficiary who is eligible for COBRA continuation coverage during the period of September 1, 2008 to December 31, 2009, due to the involuntary termination from employment of a covered employee during the period, and who elects COBRA continuation coverage.

Assistance-eligible individuals who elect COBRA coverage will be treated as having paid the required COBRA premium if the individual pays 35 percent of the premium.

Health insurance coverage qualifies for the premium assistance if the former employee, or other assistance-eligible individual, was enrolled in the employer's group health plan when the employee was involuntarily terminated and the health plan continues to be in effect for active employees.

Under ARRA, an assistance-eligible individual may receive the COBRA premium subsidy for up to nine months.

COBRA applies to health plans maintained by private-sector employers with 20 or more employees. Under ARRA, employers with fewer than 20 employees are not eligible for COBRA credits unless they are located in one of the approximately 40 states that have some form of COBRA coverage that does not require the 20 employees. These states are referred to as “Mini COBRA States”.

Mini COBRA states generally provide coverage for 2 to19 employees.

How to receive the credit:

The employer reports the 65 percent premium assistance provided to assistance-eligible individuals on their payroll tax return once the 35 percent of the premium is paid by, or on behalf of, the assistance-eligible individual. We will have more about claiming the credit on Form 941 in a moment.

Employers do not have to submit any additional information when they file Forms 941. However, the credit will be subject to verification.

Employers must maintain supporting documentation for the credits they claim. The supporting documentation must include, but is not limited to, these six items:

• One: Information on the receipt, including dates and amounts, of the assistance-eligible individuals’ 35 percent share of the premium.
• Two: In the case of an insured plan, a copy of the invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.
• Three: In the case of a self-insured plan, proof of the premium amount and proof the coverage was provided to the assistance eligible individual.
• Four: Attestation (or declaration) of involuntary termination, including the date of the involuntary termination (which must be during the period from September 1, 2008, to December 31, 2009), for each covered employee and whose involuntary termination is the basis for eligibility for the subsidy.
• Five: Proof of each assistance-eligible individual’s eligibility for COBRA coverage at any time during the period from September 1, 2008, to December 31, 2009, and election of COBRA coverage.
• And six: A record of the SSNs of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or for two or more individuals.

Form 941, 2009 version, has been revised to include two additional lines to capture the amount of the COBRA premium credit for the quarter (line 12a) and the number of affected employees (line 12b).

The employer reports the 65 percent subsidy on line 12a of Form 941, line 11a of Form 944, or line13a of Form 943 on the recently revised forms. The amount reported on lines 12a, 11a, and 13a should not include the assistance-eligible individual’s 35 percent share of the premium. The subsidy does not affect what is reported as payroll tax liabilities on Schedule B.

The employer also needs to indicate on line 12b of Form 941 (or line 11b of Form 944; line 13b of Form 943) the number of assistance-eligible individuals who received the subsidy on line 12a.

Count each assistance-eligible individual who paid a reduced COBRA premium in the quarter as one individual, whether or not the reduced premium was for insurance that covered multiple assistance-eligible individuals - for example, family coverage.

Each individual is counted only once per quarter, regardless of whether the amount reported on Line 12a includes more than one payment or their payment is for more than one month. Line 13 was also added to report the total of the COBRA subsidy and advanced earned income credit on line 11.

Instructions for Form 941, and Forms 944 and Form 943, explain how the information should be reported.

The COBRA credit will post as a federal tax deposit on the first day of the quarter to minimize any negative impact to businesses related to the FTD penalty.

During the quarter, employers can offset their federal tax deposits for employment taxes with the COBRA premium subsidy credit for the quarter.

The amount of the COBRA subsidy the employer provides during the quarter will be treated as having been deposited on the first day of the quarter and applied against the employer’s deposit requirements.

Therefore, timely deposits up to the amount of the subsidy will be deemed to have been made during the quarter, regardless of the otherwise applicable dates for deposits.

However, in some cases, the amount of the subsidy the employer provides during the quarter will be less than the total amount of the required deposits. In that case, the employer will be required to make timely deposits during the quarter to make up the difference. If the subsidy exceeds the employer’s payroll tax liability, the employer can have the excess applied to the next return or refunded.

Internal actions have been taken to enable revenue officers and assistors to respond to COBRA-related inquires. Those actions include:

• Specific COBRA communications;
• ARRA COBRA premium assistance guidance;
• IRS-wide internal alerts
• Collection COBRA coordinators in each field area to serve as local subject matter experts, and
• Research resources

In addition, other significant resources exist on the Web. Visit IRS.gov, Search, COBRA or Notice 2009-27 COBRA benefits for more information. In addition, IRS.gov also has a video and an extensive listing of frequently asked questions. You may also visit the Department of Labor Web site.

This has been part one of a three part series on the IRS Collection Process: What are your options? National Phone Forum. You'll find the other two audio segments on our Web site IRS.gov.