COBRA Tax Credit Requirements

Since the passage of the American Recovery and Reinvestment Act of 2009 in February, there have been lots of questions which have had to be addressed related to the federal subsidies for COBRA benefits.  With employers paying the full COBRA premium for assistance eligible individuals (AEIs) and taking a tax credit for 65% of that amount, accounting and payroll departments should be aware that:

No additional information relating to the COBRA subsidy is to be submitted with the Form 941.  However, those claiming the credit must maintain supporting documentation for the credit claimed.  Such documentation includes:

· Information on the receipt, including dates and amounts, of the AEIs’ 35% share of the premium.

· In the case of an insured plan, 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.

· In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the AEIs.

· Attestation 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 whose involuntary termination is the basis for eligibility for the subsidy.

· Proof of each AEI’s eligibility for COBRA coverage at any time during the period from September 1, 2008 to December 31, 2009, and election of COBRA coverage.

· A record of the social security numbers 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 two or more individuals.

· Any other documents necessary to verify the correct amount of the reimbursement.

From www.irs.gov, “COBRA Questions and Answers: Reporting and Documentation”