May 8, 2009 by Kerry Fitzgerald
Posted in: COBRA, Communication, Employment law, Records documentation, Special Report, Terminations
The Internal Revenue Service just let you off the hook for what could’ve been a big administrative hassle this year-end.

IRS recently announced it won’t require any information reporting (i.e., Forms W-2 or 1099) for COBRA premium assistance payments employers make on behalf of terminated employees.

There’s a tradeoff, of course. It’s likely that because you don’t have to officially inform employees of the subsidy amount, recipients will have to call you when they prepare their personal federal tax returns.

Some will have to pay back a portion of the subsidy, e.g., those with adjusted gross income of $125,000 or more; $250,000 for married taxpayers filing jointly. Assistance eligibility phases out completely for people with modified gross incomes of $145,000 or more; $290,000 for joint filers. They’ll return the subsidy amount by increasing their tax liability on the Form 1040.

To prevent your phone from ringing off the hook, consider compiling subsidy info throughout the year, as your company makes the premium payments, and issue a simple statement at year-end along with your W-2s or 1099s.

What you’ll need
The info you’ll need should be easy enough to find. As part of the COBRA subsidy program, the American Recovery and Reinvestment Act requires employers to maintain the following documentation:

• Dates and amounts of the assistance eligible individuals’ 35% share of the premium.
• A copy of the invoice or other supporting statement from the insurance carrier (when you have an insured plan) and proof of timely payment of the full premium to the insurance carrier required under COBRA.
• Proof of the (1) premium amount and (2) coverage provided to the assistance eligible individuals. (Self-insured plans only.)
• Attestation of involuntary termination, including the date of the involuntary termination (which must be between 9/1/08 and 12/31/09), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
• Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period between 9/1/08 and 12/31/09, and election of COBRA coverage.
• 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.
• Other documents necessary to verify the correct amount of reimbursement. Note that although your company must maintain this documentation, you’re not required to submit it with your Form 941.