The American Recovery and Reinvestment Act of 2009 (ARRA) included a major change to COBRA laws. An employer who maintains or contributes to a group health plan and employs more than 20 employees at least 50 percent of the working days during the preceding calendar year is considered a COBRA covered employer. The 20 employee limit includes all full time equivalent individuals. In other words, part time employees are counted as fractional employees based on the number of hours they work, divided by the number of hours required to be a full time employee (not to exceed 40 hours per week). As an example, two part time employees working 20 hours per week would equal one full time equivalent employee.

Under COBRA, employers who provide group health coverage as defined above are required to offer continuation of coverage to employees upon certain events. The ARRA affects how coverage is offered to individuals who lose health coverage due to an "involuntary termination" or reduction of hours during the period beginning September 1, 2008 and ending December 31, 2009.

Under the Act, employers will be required to pay 65 percent of the required COBRA premium, and the qualified individual will pay only 35 percent. The employer is entitled to a refundable credit toward their payroll taxes. This 65 percent is being referred to as the COBRA subsidy. The Act provides a subsidy for COBRA coverage and includes a number of requirements for employers, administrators and insurers. The subsidy will apply beginning with the qualified individual's premium payment for the first period of coverage following enactment and will continue for up to nine months of coverage.

There are several provisions outlining who is a qualified beneficiary, what notices need to be sent to these individuals, and how the employer is to report the subsidy on their employment tax returns. If a former employee or one that has had hours reduced fits within the dates affected, they must be offered the COBRA again under the new regulations even if they previously were notified and turned down the coverage.

If you feel that this new COBRA requirement applies to you, you will need to take the necessary steps to remain in compliance. If you are not sure, you can contact your health insurance carrier or administrator, or you may contact Mary Schmidt in our office and she will help you determine what steps you may need to take. If we prepare your quarterly payroll tax returns, we will need this information in order to properly complete your 941 form.

There are deadlines as to when you must notify qualified employees and when the subsidy should commence; consequently you will need to look into this new provision as soon as possible. The following website has helpful information regarding this.

www.irs.gov/newsroom/article/0,,id=204505,00.html