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COBRA Questions and Answers: Form Preparation for Post-2013 Tax Periods

Note 1) These Q&As apply only to tax periods beginning after Dec. 31, 2013. For tax periods ending before Jan.1, 2014 see Form Preparation – Pre-2014 Tax Periods Q&As (see link at bottom).

Note 2) An employer can no longer claim the COBRA premium assistance payments as a credit on Forms 941, 943 or 944. Instead:

  • For tax periods beginning after Dec. 31, 2013, an employer who files Form 941, Employer’s QUARTERLY Federal Tax Return, must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance-eligible individuals.

  • For tax periods beginning after Dec. 31, 2013, an employer who files Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, must file Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals.

  • For tax periods beginning after Dec. 31, 2013, an employer who files Form 944, Employer’s ANNUAL Federal Tax Return, must file Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to assistance eligible individuals.  

FP-1(post-2013)
Q. How will an employer who files Form 941, Employer's QUARTERLY Federal Tax Return be reimbursed for the COBRA premium assistance payments that it has provided to eligible individuals for tax periods beginning after December 31, 2013?

A. An employer must file Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund, to get reimbursed for the COBRA premium assistance payments that it has provided to eligible individuals for tax periods beginning after December 31, 2013.  An employer can no longer claim the COBRA premium assistance payments as a credit on Form 941, Employer's QUARTERLY Federal Tax Return. 

FP-2(post-2013)
Q. Should an employer file Form 941-X at the same time it files Form 941 for the quarter in which it provided the COBRA premium assistance payments?

A. No. An employer should file Form 941-X after filing Form 941 for the applicable quarter. An employer should file Form 941-X no earlier than 2 weeks following the filing of Form 941 for the applicable tax period.  Filing Form 941-X before or at the same time as Form 941 may delay processing of the Form 941-X.

FP-3(post-2013)
Q. Should an employer include other corrections on the Form 941-X it files for reimbursement of the COBRA premium assistance payments?

A. No. Including other corrections on Form 941-X may delay processing of Form 941-X. If Form 941-X only reflects the COBRA premium assistance credit, the employer should write “COBRA” in dark, bold letters across the top margin of page 1 of Form 941-X.

FP-4(post-2013)
Q. What should an employer use to make corrections to previously reported COBRA premium assistance payments? Does the employer still use Form 941-X to make corrections?

A. Yes. Effective for tax periods beginning after December 31, 2013, Form 941-X is used both to report the COBRA premium assistance payments an employer made during the applicable quarter and to correct any previously reported COBRA premium assistance payments. 

FP-5(post-2013)
Q. Can an employer select either the claim process or the adjustment process on Form 941-X when reporting COBRA premium assistance payments?

A. Yes, an employer may select either the claim process or the adjustment process on Form 941-X. However, an employer may only reduce its deposits during the applicable quarter by the amount of COBRA premium assistance payments that will be reflected on its Form 941-X if it uses the claim process to claim the COBRA premium assistance credit on its Form 941-X. If an employer is planning to use the adjustment process to apply the credit to a future quarter, it may not reduce its deposits during the current quarter. See FP-6(post-2013), for additional information regarding the consequences of an employer reducing its deposits in anticipation of the COBRA premium assistance credit.

FP-6(post-2013)
Q. If an employer reduces its deposits in anticipation of the COBRA premium assistance credit, can the employer select either the claim or adjustment process on Form 941-X? 

A. If an employer reduces its deposits during the applicable quarter by the amount of COBRA premium assistance payments that will be reflected on its Form 941-X it may only use the claim process to claim the COBRA premium assistance credit on its Form 941-X. 

Additionally, because the COBRA premium assistance credit is now claimed on Form 941-X filed AFTER submission of the Form 941, an employer that reduces its required deposits in anticipation of the credit will receive a system-generated notice reflecting a balance due and penalties and interest, if applicable. The balance due, including any penalties and interest, resulting from the reduction in deposits in anticipation of the credit will be abated when the credit is applied. Such abatement will generally occur without any further action from the employer.

FP-7(post-2013)
Q. What happens if an employer reduces its deposits in anticipation of the COBRA premium assistance credit and selects the adjustment process on Form 941-X?

A. As indicated in FP-5(post-2013), an employer should not select the adjustment process if it reduces its deposits in anticipation of the COBRA premium assistance credit. An employer that reduces its required deposits in anticipation of the credit will receive a system-generated notice reflecting a balance due and penalties and interest, if applicable. In the case of an employer that selects the adjustment process to claim the credit, the credit will be applied to the Form 941 for the quarter in which the Form 941-X was filed. However, because the employer did not use the claim process, the balance due resulting from the reduction in deposits will not be abated and the employer will receive a subsequent balance due notice, with penalties and interest. You must pay the amount you owe, including any interest and penalties.

FP-8(post-2013)
Q. If an employer does not reduce its deposits in anticipation of the COBRA premium assistance credit, can the employer select either the claim or adjustment process on Form 941-X? 

A. Yes. An employer does not have to reduce its deposits during the quarter by the amount of the COBRA premium assistance payments that will be reflected on the Form 941-X. An employer will prevent triggering a system-generated balance due notice by making its deposits without a reduction in anticipation of the COBRA premium assistance credit and following the ordinary procedures for filing a claim for refund or adjusted return using the Form 941-X.

FP-9(post-2013)
Q. Can an employer reduce its payroll deposits during the quarter by the amount of the COBRA premium assistance payments it provides during the quarter without incurring a Failure to Deposit penalty?

A. An employer can reduce its payroll deposits during the quarter by the amount of the COBRA premium assistance payments it provides during the quarter. The amount of COBRA premium assistance payments the employer provides during the quarter (based on the 35 percent premium payments received from assistance-eligible individuals during the quarter) will be treated as having been deposited on the first day of the quarter and applied against the employer’s deposit requirements. Therefore, timely deposits up to the amount of the COBRA premium assistance payments will be deemed to have been made during the quarter, regardless of the otherwise applicable due dates for deposits. In most cases, the amount of the COBRA premium assistance payments the employer provides during the quarter will be less than the total amount of the employer’s required deposits for the quarter. In that case, the employer will be required to make timely deposits during the remainder of the quarter to make up the difference.

However, because the credit is now claimed on Form 941-X filed AFTER submission of the Form 941, an employer that reduces its required deposits in anticipation of the credit will receive a system-generated notice reflecting a balance due and penalties and interest, if applicable. The balance due, including any penalties and interest, resulting from the reduction in deposits in anticipation of the credit will be abated when the credit is applied. Such abatement will generally occur without any further action from the employer. 

To prevent triggering a system-generated balance due notice, the employer can make its deposits without a reduction in anticipation of the COBRA premium assistance credit and follow the ordinary procedures for filing a claim for refund or adjusted return using the Form 941-X.

Example 1: The required payroll deposits for Employer Z for the second quarter of 2014 total $10,000, determined without regard to the COBRA premium assistance payments provided by Employer Z during the quarter. Employer Z provides assistance-eligible individuals with COBRA premium assistance payments totaling $12,000 during the quarter, based on the 35 percent premium payments received from the individuals during the quarter. Employer Z timely files a Form 941 listing a balance due of $10,000. After filing the Form 941, Employer Z files a Form 941-X, selects the claim process to claim a credit of $12,000.  Employer Z will be treated as having made a $10,000 payroll tax deposit on the first day of the quarter and thus will not be subject to a failure-to-deposit penalty for the quarter even though it reduced its deposits during the quarter by the amount of the COBRA premium assistance payments. However, because the credit is now claimed on Form 941-X filed AFTER submission of the Form 941, Employer Z will receive a system-generated balance due notice. The balance due, including any penalties and interest, resulting from the reduction in deposits in anticipation of the credit will be abated when the credit is applied. Such abatement will generally occur without any further action from Employer Z. Unless Employer Z owes other taxes, penalties or interest, the IRS will refund the $2,000, plus any interest that applies to Employer Z.

Example 2: The required payroll deposits for Employer Y for the second quarter of 2014 total $10,000, determined without regard to the COBRA premium assistance payments provided by Employer Y during the quarter. Employer Y provides assistance-eligible individuals with total COBRA premium assistance payments of $8,000 during the quarter, based on the 35 percent premium payments received from the individuals during the quarter. Employer Y timely deposits $2,000 of its payroll tax liability. Employer Y timely files a Form 941 listing a balance due of $8,000. After filing the Form 941, Employer Y files a Form 941-X, selects the claim process to claim a credit of $8,000. Employer Y will be treated as having made an $8,000 payroll tax deposit on the first day of the quarter and thus will not be subject to a failure-to-deposit penalty for the quarter. However, because the credit is now claimed on Form 941-X filed AFTER submission of the Form 941, Employer Y will receive a system-generated balance due notice. The balance due, including any penalties and interest, resulting from the reduction in deposits in anticipation of the credit will be abated when the credit is applied. Such abatement will generally occur without any further action from Employer Y. 

Example 3: Assume the same facts as in Example 2, but Employer Y timely deposits all $10,000 of its payroll tax liability. Employer Y timely files a Form 941 listing a balance due of $0. After filing the Form 941, Employer Y files a Form 941-X, selects the claim process to claim a credit of $8,000. Unless Employer Y owes other taxes, penalties or interest, the IRS will refund the $8,000, plus any interest that applies to Employer Y. Additionally, because Employer Y timely deposited all of its payroll tax liability, Employer Y will not receive a system-generated balance due notice.

Example 4: Assume the same facts as in Example 3, but Employer Y files a Form 941-X during the second quarter of 2014, selects the adjustment process, and elects to apply the $8,000 credit to Form 941 for the second quarter of 2014 (the period during which Employer Y filed the Form 941-X). The IRS will apply the credit on April 1, 2014 (the first day of the Form 941 period during which Employer Y filed Form 941-X). 

FP-10(post-2013)
Q. Will claiming the COBRA premium assistance credit on Form 941-X impact an employer’s current “assigned” deposit frequency or future deposit frequencies (e.g. change the employer from a monthly to semi-weekly depositor)? 

A. No. Frequency of deposits and lookback periods are based on the total tax liability reported on the “total taxes after adjustments” line of Form 941. Adjustments made on Form 941-X do not affect the amount of tax liability for previous periods for purposes of the lookback rule. Therefore, the COBRA premium assistance credit will not affect the employer’s current “assigned” deposit frequency or future deposit frequencies (e.g. change the employer from a monthly to semi-weekly depositor).

FP-11(post-2013)
Q. Does a COBRA premium assistance credit reduce an employer's payroll tax liabilities when determining whether $100,000 in liabilities has accumulated for deposit purposes?

A. No. The credit is treated like a payment of payroll taxes and is applied as a deposit made on the first day of the quarter. It does not reduce an employer’s tax liabilities for purposes of determining the employer’s deposit schedule generally or applying the $100,000 deposit rule specifically. However, since the credit is applied as a deposit, a required deposit can be reduced by the amount of the credit. For example, if an employer accumulates $110,000 of liabilities and has a $20,000 credit based on the COBRA premium assistance payments it provided, the employer must still deposit the next day under the $100,000 rule, but is only required to deposit $90,000. See FP-6(post-2013) for a discussion of the system-generated balance due notice that is triggered by reducing deposits in anticipation of the COBRA premium assistance credit.

FP-12(post-2013)
Q. Is the employer required to file the claim for refund or adjustment on Form 941-X for the quarter during which the COBRA premium assistance payments
are provided to assistance-eligible individuals? 

A. No. Instead of claiming the credit on Form 941-X for the quarter during which the COBRA premium assistance payments are provided, the employer may generally choose to claim the credit on Form 941-X for a later quarter in the same calendar year. If the employer reduces its deposits in anticipation of the credit, it should file the Form 941-X for the quarter in which it reduced its deposits. 

FP-13(post-2013)
Q. Form 941-X asks for the number of individuals provided COBRA premium assistance. How does an employer determine the correct number of individuals to enter on Form 941-X?

A. The employer should count each assistance-eligible individual who paid a reduced COBRA premium in the quarter as one individual, whether or not the reduced premium was for insurance that covered more than one assistance-eligible individual (e.g., family coverage). For example, if the reduced COBRA premium was for coverage for a former employee, spouse and two children, you would include one individual in the number entered for individuals provided COBRA premium assistance. Each individual is reported only once per quarter regardless of whether or not the individual made monthly or more frequent premium payments during the quarter.

Example: Employer X has one former employee who is an assistance-eligible individual eligible for COBRA coverage and for COBRA premium assistance as of May 1, 2014. Former employee makes COBRA premium payments on May 1 and June 1, 2014, with each payment consisting of 35 percent of the premium for COBRA coverage of the former employee and his three family members for that month. The number to be entered for individuals provided COBRA premium assistance on Form 941-X is 1.

FP-14(post-2013)
Q.
How is reimbursement for the COBRA premium assistance payments claimed if the entity entitled to reimbursement does not have any payroll tax liabilities, for example, in the case of a multiemployer plan with no employees?

A. Even if the entity entitled to reimbursement for the premium assistance payments does not have any payroll tax liabilities, reimbursement is claimed by filing a claim for refund or adjustment on Form 941-X. The entity entitled to reimbursement must first file a Form 941 and enter a zero on the line for balance due. As in other cases, reimbursement for the COBRA premium assistance payments can be claimed only after the assistance-eligible individual’s 35 percent of the premium has been received. In addition, the documentation discussed in question RD-1 on the Reporting and Documentation Q&A page (see link at bottom) must be maintained.

FP-15(post-2013)
Q. If, instead of filing employment tax returns and making payroll tax deposits and payments under its own name and tax identification number (TIN), an employer has filed Form 2678, appointing an agent to file returns and make deposits and payments, how does the employer claim a credit for the COBRA premium assistance payments it provides? 

A. In the case of an employer that has appointed an agent to file employment tax returns and make payroll tax deposits and payments on its behalf, any COBRA premium assistance credit to which the employer is entitled should be claimed on the Form 941-X filed by the agent on behalf of the employer. 

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Page Last Reviewed or Updated: 25-Apr-2014