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More COBRA Continuation Coverage Guidance |
The IRS has released Notice 2009-27 providing extensive guidance on issues facing employers regarding the 65% COBRA premium subsidy for assistance eligible individuals. The premium reduction applies for coverage periods beginning on or after February 17, 2009.
Notice 2009-27 provides a Q&A section with examples covering 58 separate questions on a variety of issues, including:
- What is considered an “involuntary termination”
- Who are assistance-eligible individuals
- How is the premium reduction calculated
- Types of coverage eligible for the premium reduction
- The dates and duration of the premium reduction period
- Recapture provisions
Among the issues that have been clarified:
- An involuntary termination may include a lay-off period with a right of recall or a temporary furlough period if these include a loss of health coverage.
- An involuntary termination may also include a termination elected by an employee in return for a severance or buy-out package where the employer has indicated that a certain number of remaining employees in the group will be terminated.
- Whether or not premium assistance is available during a period of severance depends on whether, under the severance policy, the individual’s COBRA period is considered to start while receiving severance or after the severance period is over.
- Individuals are disqualified from receiving the Health Coverage Tax Credit for any month in which they receive a premium reduction.
Recapture provisions. While the premium subsidy is excludable from the individual’s income under §138C, the subsidy is subject to recapture in the following circumstances:
- The premium reduction is provided for COBRA continuation coverage for an individual, the individual’s spouse or dependent, and
- The individual’s modified AGI exceeds $125,000 ($250,000 MFJ).
Eligibility to exclude the premium subsidy from income is completely phased out if modified AGI exceeds $145,000 ($290,000 MFJ). The reduction is recaptured as an increase in the individual’s federal income tax liability. For this reason, some individuals may want to waive the premium reduction to avoid having to pay it back.
To learn more about these provisions and how to communicate with your clients, please see the items posted to the Tax Compliance & Reference database. |