Mar 04, 2009

Guidance Released by the IRS and DOL for COBRA Subsidy Under Economic Stimulus Legislation

On February 26, 2009, the Internal Revenue Service (IRS) and the Department of Labor released preliminary guidance to assist employers with administering the COBRA premium assistance provisions of the American Recovery and Reinvestment Act of 2009 (ARRA). As explained in the February 17, 2009 SGR Client Alert regarding this topic, individuals who were involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes of less than $125,000 (single) or $250,000 (couples) are eligible to receive a 65 percent subsidy toward the cost of their COBRA health care premium for up to 9 months. Employers will receive a credit against payroll taxes for the cost of the subsidy to these Assistance Eligible Individuals (AEIs).

New IRS Guidance on COBRA Subsidy and Reimbursement

On its website (, the IRS posted a set of questions and answers for employers addressing issues such as how employers will be reimbursed for the COBRA subsidy. Notably, employers claiming the reimbursement must maintain supporting documentation for the reimbursement claimed, including the following information:

  • receipts for the 35% of the COBRA premium paid by AEIs, including dates and amounts;
    in the case of an insured plan, a copy of the invoice or other supporting statement from the insurance carrier which includes proof of timely payment by the employer to the insurance carrier for the full COBRA premium;
  • in the case of a self-insured plan, proof of the premium amount paid by AEIs and proof that coverage was provided to AEIs;
  • attestation of involuntary termination, including the date of the involuntary termination for each individual eligible for the subsidy;
  • proof that each AEI is eligible for COBRA coverage at any time during the period from September 1, 2008 to December 31, 2009, and election of COBRA coverage;
  • a record of the Social Security numbers of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for 1 individual or 2 or more individuals; and
  • other documents necessary to verify the correct amount of reimbursement.

The IRS also released an updated Form 941 (Employer’s Quarterly Federal Tax Return) and corresponding instructions for employers to use to report their COBRA premium assistance payments. The updated Form 941 will be sent to employers in mid-March.

New DOL Guidance on COBRA Subsidy and Reimbursement

On its website (, the DOL released a variety of new and updated materials addressing the COBRA premium assistance provisions including:

  • a fact sheet summarizing the COBRA premium assistance provisions;
  • frequently asked questions for employers and workers and their families including information relating to the COBRA subsidy;
  • flyers for employers and employees announcing the applicability of the COBRA changes under ARRA; and
  • a “job loss” poster notifying individuals of the availability of the COBRA subsidy.

For more information on the DOL’s COBRA guidance, or for copies of the DOL materials, click here.

To assist our clients and other interested parties, SGR will be holding a free one-hour webinar on the COBRA subsidy on Tuesday, March 17th at 11:00 a.m. Eastern. This webinar will also include a brief update on the new required I-9, and other recent employment-related legislation. For more information and to register, click here.

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