Tax News

CCH (cch.taxgroup.com) reports:

  Much-anticipated guidance on the new COBRA subsidy under the American Recovery and Reinvestment Act of 2009 (P.L. 111-5) (2009 Recovery Act) was issued by the IRS late on March 31. Earlier that day, a Treasury Department official had told practitioners in Washington, D.C,. that release of the guidance was imminent. The guidance, in the form of questions and answers, describes involuntary termination, who is eligible for premium assistance, calculation of the premium reduction and related issues. The guidance does not elaborate on how employers (and in some cases plans) will be reimbursed for the subsidy through a payroll tax credit. The IRS has posted questions and answers about the payroll tax credit on its website.

Involuntary Termination

  The determination of whether an involuntary termination has occurred, the IRS explained, is based on all the facts and circumstances. An employer's unilateral dismissal of an employee is an involuntary termination. Similarly, the term involuntary termination may include the employer's failure to renew a contract at the time the contract expires, if the employee was willing to execute a new contract. However, a reduction in hours is not an involuntary termination. Death of the employee is also not involuntary termination for purposes of the COBRA subsidy.

  Kevin Knopf, attorney-advisor, Treasury Office of Benefits Counsel, cautioned that the guidance would not address every scenario of what is involuntary termination. Knopf spoke at an employee benefits event sponsored by the District of Columbia Bar Association a few hours before the IRS released the COBRA subsidy guidance.

  Being asked to resign or else be fired is an involuntary termination for purposes of the COBRA subsidy, Knopf said. It is less clear, he noted, whether an involuntary termination occurs when an individual quits after having taken family or medical leave.

Eligible Individuals

  The IRS reiterated that the COBRA subsidy is available only to individuals who are involuntarily terminated from employment between September 1, 2008, and December 1, 2009. Involuntary termination and the loss of coverage must occur within that period of time.

Appeal Process

  Amy Turner, Employee Benefits Security Administration, Department of Labor, told the District of Columbia Bar Association that some employers, if they are unsure that an involuntary termination has taken place, will deem a person to have voluntarily left his or her employment. The individual will have to appeal that adverse determination to the DOL. The DOL is developing an appeals form, Turner said. "The form will be available soon on the DOL website." The DOL must act on an individual's appeal within 15 days, Turner explained.

Immediate Benefit

  Some employers and plans have questioned whether an eligible individual can immediately reduce his or her COBRA premium to 35 percent rather than wait for notice from the former employer. "Individuals are entitled to send in a 35 percent payment," Turner said. However, an employer cannot unilaterally reduce an individual's COBRA premiums to 35 percent because the individual may not be eligible for the subsidy.

  By George L. Yaksick, Jr., CCH News Staff

Notice 2009-27, 2009FED ¶46,310

Other References:

 
Code Sec. 6432

  CCH Reference - 2009FED ¶38,940.01

  Tax Research Consultant

  CCH Reference - TRC COMPEN: 45,206