Clarification on Claiming the COBRA Subsidy Credit

The IRS has recently posted additional guidance to its website related to the COBRA premium subsidy credit.

Under the American Recovery and Reinvestment Act of 2009 (ARRA) the federal subsidy is 65% for 15 months of continued health insurance coverage for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).  Involuntarily terminated individuals will receive the 65% subsidy of their coverage reimbursed through a tax credit. Most employers claim the credit on Form 941, Employer's Quarterly Federal Tax Return. Certain employers claim the credit on other employment tax returns (example: Form 943 or Form 944).

The IRS’s website answers the following questions:

1. Is the employer required to claim the credit on Form 941 for the quarter during which the COBRA subsidy is provided to assistance-eligible individuals?
   • Employers should choose to claim the credit on Form 941 for a later quarter in the same calendar year.
   • If the employer has not claimed the credit on the original Form 941 for the quarter during which the COBRA subsidy was provided, the employer can file Form 941-X for that quarter.
2. If, in 2010, an employer receives payment of an assistance-eligible individual's 35% share of the COBRA premium for 2009 coverage, does question FP-15 permit the credit for the related 65% premium subsidy to be claimed for a quarter in 2009?
   • If an employer receives an individual's 35% share of the COBRA premium in 2010, the employer may claim the credit for the subsidy on Form 941 for either the quarter in 2010 in which it receives the individual's 35% premium payment or a later quarter in 2010, but not for a quarter in 2009, regardless of the fact that the premium is for coverage during 2009.

Source: In IRS Form Preparation Q&A FP-15 (3/5/09) (see Weekly Alert ¶  26 06/11/2009)

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