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COBRA Health Insurance Continuation Premium Subsidy

The Recovery Act established an employer-provided health insurance continuation subsidy for workers who involuntarily lost their jobs between Sept. 1, 2008, and March 31, 2010. This subsidy has now been extended through May 31, 2010.

The U.S. Department of Labor website also contains extensive information on this subsidy.

Health Coverage Tax Credit

Some people who are eligible for the COBRA subsidy also qualify for the health coverage tax credit (HCTC) and may want to choose this more generous benefit instead. The HCTC pays 80 percent of health insurance premiums for those who qualify. Eligible individuals must receive Trade Adjustment Assistance benefits or be between the ages of 55 and 65 and receive pension payments from the Pension Benefit Guaranty Corporation. Individuals must also be enrolled in a qualified health plan. Find additional information at HCTC: Eligibility Requirements and How to Receive the HCTC.  

Employers

See these resources:

  • IR-2009-15, IRS Releases Information to Help Employers Claim COBRA Medical Coverage Credit on Payroll Tax Form.
  • Questions and answers on how to administer the COBRA continuation premium subsidy to former employees.
  • Notice 2009-27, Premium Assistance for COBRA Benefits. 

Employers should use the updated:

  • Form 941, Employer's Quarterly Federal Tax Return, to report their COBRA premium assistance payments.
  • Form 941 Instructions, which explain how to complete lines 12a and 12b, which address the COBRA premium assistance payments.

Small employers that file Form 944, Employer’s ANNUAL Federal Tax Return — generally those with an estimated employment tax liability of $1,000 or less in the calendar year — may claim their COBRA credit on Form 944. Additionally, agricultural employers may claim the COBRA credit on Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees.

Employees and Former Employees

If You Lost Your Job

The Recovery Act provides eligible workers who have lost their jobs with a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to 15 months.

  • Eligible workers pay 35 percent of the premium to their former employers.
  • To qualify you must have been involuntarily separated from your job between Sept. 1, 2008, and May 31, 2010.
  • This subsidy is reduced if your filing status is single and your modified adjusted gross income exceeds $125,000 ($250,000 if you file a joint return). If your modified adjusted gross income exceeds $145,000 ($290,000 for joint filers), you do not qualify for the subsidy.

If Your Hours Were Reduced

In addition, the COBRA subsidy is available to people who become eligible for COBRA coverage as a result of a reduction in hours occurring between Sept. 1, 2008, and May 31, 2010, followed by an involuntary termination between March 2, 2010 and May 31, 2010. If you fall into this category, your subsidy is available starting with the first period of coverage beginning after the involuntary termination.

Individuals who did not take COBRA coverage after the reduction in hours or who signed up but later dropped it, get another chance to sign up for COBRA coverage. In this case, the COBRA coverage would begin with the first period of coverage after the involuntary termination and continue up to 18 months after the reduction in hours. The administrator of a group health plan or other entity must provide notice of the new election right after the involuntary termination. As in the case of other assistance-eligible individuals, the subsidy ends after the earliest of 15 months, the end of COBRA coverage, or eligibility for other group health or Medicare coverage.

Questions and Answers

Want to know more? See our question and answer page.

 

Related Item:  The American Recovery and Reinvestment Act of 2009: Information Center

Page Last Reviewed or Updated: 03-Dec-2013