The IRS has provided further guidance to one of its questions and answers (Q&As) relating to the COBRA premium subsidy credit available to employers. The latest guidance pertains to situations in which a credit is claimed for 2009 COBRA premium payments received in 2010.
A subsidy of 65% of the COBRA continuation health insurance premiums paid is available to individuals who have been involuntarily terminated. The American Recovery and Reinvestment Act of 2009 extended the premium subsidy provision from nine to 15 months. The employer providing the subsidy generally receives a credit for the subsidy amount on Form 941, Employer?s Federal Tax Return.
The IRS previously provided guidance on commonly asked COBRA-subsidy-related issues in Q&A format on its website. One such question (FP-15) was: ?Is the employer required to claim the credit on Form 941 for the quarter during which the COBRA subsidy is provided to an assistance-eligible individual?? The IRS answer is: "No. Instead of claiming the credit on Form 941 for the quarter during which the COBRA subsidy is provided, the employer may generally choose to claim the credit on Form 941 for a later quarter in the same calendar year."
The following inquiry was recently made to the IRS: If, in 2010, an employer receives payment of an assistance-eligible individual?s 35% share of the COBRA premium for 2009 coverage, may the credit for the related employer-paid 65% premium subsidy be claimed for a quarter in 2009?
The IRS?s response was "No." If an employer receives an assistance-eligible individual?s 35% share of the COBRA premium in 2010, the employer may claim the credit for the related premium subsidy on Form 941 for either the quarter in 2010 in which it receives the individual?s 35% premium payment, or a later quarter in 2010, but not for a quarter in 2009, regardless of the fact that the premium is for coverage during 2009.
In all cases, however, if an employer chooses to reduce its payroll tax deposits during the quarter based on the employer?s receipt of the individual?s 35% premium payment during that quarter, the employer must claim the credit for the related subsidy amount on Form 941 for the quarter during which its payroll tax deposits were reduced. Of course, an employer may only claim credit for the subsidy amount once.
The IRS?s response should allay any concerns that existed among employers regarding the necessity to amend a 2009 employment tax return for affected COBRA premiums received after January 31, 2010, the deadline for filing 2009?s Q4 Form 941.
If your business needs guidance on the COBRA subsidy rules in general or the payroll tax treatment in particular, please let us know.