Business Owners Remember Tax Credit for COBRA Subsidy.
Employers should refer to the updated
Form 941 instructions
before reporting
their COBRA subsidy payments.
Under the COBRA subsidy coverage, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. Employers must treat the 35 percent payment by eligible former employees as full payment, and are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.
According to the Internal Revenue Service (IRS), employers should follow these guidelines:
- Report 65% of the COBRA Premium Assistance Payments for eligible individuals.
- The COBRA credit must be claimed during the tax year in which the subsidy was paid.
- If by taking the credit, it resulted in overpayment, you can choose to have the IRS to either refund or carry forward to the following quarter, even if the subsequent quarter is in the following tax year.
- COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees.
- It also covers employee organizations or federal, state or local governments.
- It does not apply to churches and certain religious organizations.
- It also applies to insurers required to offer continuation coverage
under state law similar to the federal COBRA.
Employers must maintain supporting documentation for the credit claimed.
These include:
- Documentation of receipt of the employee’s 35 percent share of the premium.
- In the case of insured plans: A copy of invoice or other supporting statement
from the insurance carrier and proof of timely payment of the full premium to the insurance carrier. - Declaration of the former employee’s involuntary termination.
For more information, contact Teressa Copeland at 817-508-7306 or tcopeland@odysseyonesource.com or contact your account manager.
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