Payroll Tax Reporting for COBRA Subsidy Offset

The American Recovery and Reinvestment Act of 2009 allows a credit against employment taxes for providing COBRA premium assistance to assistance-eligible individuals. As deadlines approach for employers to file their quarterly payroll taxes, groups may be asking about the process for reporting the COBRA and state continuation premium subsidies.

The 65 percent of the premium not paid by assistance-eligible individuals is reimbursed to the employer or other entity maintaining the group health plan. The federal government provides this reimbursement through a credit against employment tax liabilities.

Recent guidance from the IRS indicates that anyone claiming the credit for COBRA assistance payments must maintain the appropriate information to support their claim. Please note that employers who are not subject to COBRA are not responsible for claiming the subsidy. For groups for whom we are the COBRA administrator, all the necessary information has been included in your monthly premium reconciliation.

Information is available on the IRS Web site at www.irs.gov and in Publication 15 (Circular E), Employer’s Tax Guide.