The IRS has published a new webpage to answer questions from employees and former employees about the COBRA premium subsidy. (The American Recovery and Reinvestment Act of 2009 (ARRA) makes COBRA premium assistance available for certain employees who are involuntarily terminated and become eligible for COBRA between September 1, 2008 and December 31, 2009.) Although the information in these Q&As is not new, employees may find it more accessible in this new location.
The webpage contains Q&As on changing in eligibility and how the subsidy is taxed.
Change in Eligibility - Three questions address the actions an individual must take when the individual becomes eligible for other health coverage or Medicare and is no longer eligible for the subsidy.
- The individual must notify the health plan in writing. A link is provided to a DOL model notice the individual can use.
- An individual failing to notify the plan may be subject to a penalty to 110% of the subsidy the individual may receive after becoming ineligible for the subsidy.
- An IRS phone number is provided where the individual can self-report the penalty.
Taxability of Subsidy - Two questions address how the subsidy is to be taxed.
- The premium subsidy is not to be included in the individual’s income for federal tax purposes. However, individuals with income exceeding $125,000 (single) or $250,000 (joint) will be subject to a phase-out of the subsidy. Consequently, these individuals will need to repay all or part of the subsidy as additional tax.
- The state tax law will determine how the state income tax will be treated for the individuals filing in that state.
Click here to view the webpage.
The COBRA subsidy is authorized by the American Recovery and Reinvestment Act of 2009 (ARRA). Click here to view section 3001 of the American Recovery and Reinvestment Act of 2009 (ARRA), Public Law 111-5, enacted February 17, 2009, relating to premium assistance for COBRA continuation coverage.
