RELIEF FOR COBRA OBLIGATIONS

Dear friends of RC Jones & Associates

The new economic stimulus law -- the American Recovery and Reinvestment Act of 2009 -- subsidizes the cost of continuing COBRA medical coverage for some employees who have lost, or will lose, their jobs. But the burden of paying the rest of the premiums is shifting to employers.

Fortunately, if your firm is required to pick up the slack for premium payments, it can claim a special tax credit on the quarterly employment tax return (Form 941). Alternatively, you can reduce employment tax deposits by the amount of the subsidiary payments. The IRS recently released additional guidance on these points.

The long-standing law known as COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) allows an employee who is terminated from employment to continue employer-provided health insurance coverage for up to 18 months. The maximum continuation period is extended to 29 months for an employee who suffers a disability; 36 months for a spouse or dependent facing loss of coverage due to death, divorce or legal separation.

Now the new law offers beleaguered taxpayers a discount. An employee who is "involuntarily terminated" from the job between Sept. 1, 2008 and Dec. 31, 2009, may elect to pay only 35% of the required premiums for a nine-month stretch. It's up to the employer to pick up the remaining 65% of the tab.

However, if an employer is forced to make COBRA subsidiary payments for employees who have been laid off or fired, the business is eligible for the new COBRA premium assistance credit. The new IRS guidance clarifies that a company can't claim the payroll tax credit until it has received the 35% payment from the former employee.

Another option for your firm is to reduce regular employment tax deposits. For this purpose, the COBRA premiums will be treated as having been made on the first day of the quarter and will be applied against the usual deposit requirements for the employment taxes. Note: This does not otherwise affect an employer's obligation to pay employment taxes in a timely fashion.

It makes sense to recoup your firm's COBRA payments as soon as possible; if you have any questions regarding the new COBRA rules; Call us at (816) 792-9966 to examine your options.

Very truly yours,
Robert C. Jones

www.RCJonesInc.Com