COBRA Subsidy & the IRS Form 941

So, you’ve heard that there have been changes to your 941 form, but just what are those changes exactly? Well, here’s a brief rundown.

The American Recovery and Reinvestment Act of 2009 (the Recovery Act, P.L. 111-5) offers a 65%  COBRA premium subsidy for up to 9 months to workers who were terminated involuntarily between September 10, 2008, and December 31, 2009. This range was extended in February, 2010, and now applies to any employee terminated before March 1, 2010. Basically, the Act says that if a worker pays at least 35% of the COBRA premium, he or she must be treated as though the full premium cost was paid for the Group Health Plan continuation. So, the employer, or individual providing the COBRA coverage, ends up paying the difference in the COBRA Premium on behalf of the ex-employee. The Recovery Act then provides a way for the employer, or the entity to whom COBRA premiums are payable, to be reimbursed those premium payments made on the ex-employee’s behalf. The employer may be reimbursed the difference between the full premium amount and the amount paid by the worker.

To do this, the employer is allowed to take enter a refundable credit on the Form 941 to reduce their quarterly unemployment tax liability, or apply directly to the IRS to receive the money back.

This is where the changes on the Form 941 come into play. The IRS added lines 12a and 12b to the form to allow employers to report those COBRA reimbursements to which they are entitled.

  • Line 12a - COBRA premium assistance payments - The employer can enter only those COBRA premium amounts paid on the worker’s behalf. This is only the amount up to 65% of the total premium amount that was paid by the employer. No amounts paid by the employee should be entered here.
  • Line 12b - Number of individuals provided COBRA premium assistance reported on line 12a - This line is pretty self-explanatory. This is the number of people who paid at least 35% of their premium and were given assistance for the rest.

Here is a link to the new 941 form for 2010.

Here is a link for instructions for filling out the Form 941.

Eric Droke - Payroll Software Support Specialist

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