COBRA: Questions and Answers for Employees and Former Employees
Change in Eligibility
Q1. I just started a new job that provides group health insurance, so I am no longer eligible for the COBRA subsidy. How do I notify my former employer that I should no longer receive the subsidy?
A1. If you become eligible for other group health coverage (such as coverage from a new job) or Medicare coverage, you're no longer eligible for the COBRA subsidy. You must notify the health plan that's been providing your COBRA coverage that you're no longer eligible for the subsidy. This notification must be made in writing.
Once you become eligible for other group health coverage or Medicare, you're no longer eligible for the COBRA premium subsidy, regardless of whether you actually enroll in the other group health coverage or Medicare. Once eligibility for the subsidy ends, if you continue to receive COBRA coverage, you must pay the full COBRA premium without the subsidy, in addition to notifying the health plan.
The U.S. Department of Labor Web site provides a model notice for employers and plans to advise individuals of their right to the subsidized COBRA continuation coverage. The last page of the notice includes the form you should use to notify your plan that you're no longer eligible for the COBRA subsidy. (09/02/09)
Q2. What happens if someone fails to notify their plan that they are eligible for other group health coverage or Medicare?
A2. An individual who fails to notify the health plan providing COBRA coverage and continues to receive the COBRA premium subsidy after they are eligible for other group health coverage or Medicare may be subject to a penalty under IRC § 6720C. This penalty is equal to 110% of the subsidy provided on the individual’s behalf after they became eligible for the other coverage or Medicare. (09/02/09)
Q3. How does a person report the new penalty to the IRS?
A3. Anyone who failed to notify their plan that they are no longer eligible for the COBRA subsidy should self-report that they are subject to the penalty by calling the IRS toll-free customer help line at 1-800-829-1040. In addition, the individual must notify their plan that they are no longer eligible for the COBRA premium subsidy.
Anyone who suspects that someone may be receiving the subsidy after they become eligible for group coverage or Medicare may report this to the IRS by completing Form 3949 A, available on this Web site. The completed form should be printed and mailed to:
Internal Revenue Service
Fresno, CA 93888
More information about the informant procedures may be found in How Do You Report Suspected Tax Fraud Activity? (09/02/09)
Taxability of Subsidies
Q4. Is the COBRA premium subsidy taxable income for the individual?
A4. The premium subsidy is not included in the individual’s income. However, there is a phase-out of eligibility for the subsidy, which will increase some high-income individuals’ tax liability if they receive the subsidy. The phase-out impacts individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Tax liability is increased, to achieve repayment of a portion of the subsidy, for those taxpayers whose modified adjusted gross income is between $125,000 and $145,000, or $250,000 and $290,000 for those filing joint returns. If a taxpayer’s modified adjusted gross income exceeds $145,000, or $290,000 for those filing joint returns, the full amount of the subsidy must be repaid as an additional tax. There is no additional tax for individuals with modified adjusted gross income less than these income levels. (02/26/09)
Q5. Is the 65% subsidy subject to state income tax?
A5. The premium subsidy is not included in income for federal tax purposes. However, its treatment for state income tax purposes is determined under state law and depends on the tax law of the particular state. (03/19/09)