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IRS, DOL release guidance on new COBRA rules

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in Leaders & Managers,Management Training,Small Business Tax,Small Business Tax Deduction Strategies

Confused about the 65% COBRA subsidy provision that was included in the big federal stimulus package approved in February? You’re not alone. In an effort to clarify things, the IRS has published new information on its web site—including a complete Q&A fact sheet—to help employers claim the credit for COBRA health insurance premiums they pay for former employees.

Under the new law, “assistance eligible individuals”—those who were “involuntarily terminated” from their jobs between Sept. 1, 2008, and the end of 2009—are required to pay only 35% of the cost of COBRA continuing health insurance coverage. Employers must treat the 35% payment as full payment.

Employers are then entitled to collect a credit for the other 65% of the COBRA cost on their payroll tax returns. The IRS released a revised version of the quarterly payroll tax return (Form 941) that employers will use to claim the credit. Copies of the new Form 941 were sent to about 2 million employers in mid-March.

In addition, the U.S. Department of Labor (DOL) has published guidance telling employers how to handle the new law. This includes sample notification letters that employers are required to use to inform departed workers of their ability to sign up for COBRA using this new subsidy.

Online resource: Find links to the new IRS and DOL fact sheets, plus more details on the stimulus law on our comprehensive stimulus page at www.theHRSpecialist.com/stimulus.

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