Delaware Employment Law Blog

The Delaware House of Representatives voted yesterday in favor of Senate Bill 30, a bill that would create same-sex civil unions in Delaware, and recognize civil unions performed in other states. The bill also changes all sections of the Delaware Code where marriage is mentioned, by requiring that the word “marriage” be read to mean “marriage or civil union.” 

Senate Bill 30 was approved by the Delaware Senate on April 7, and Governor Markell has already declared that he will sign the bill into law “as soon as a suitable time and place are arranged.” The law will take effect on January 1, 2012.

The new law raises several questions for employers.  For example, the law cannot, and does not, alter federal non-recognition of civil unions. So how will the new law impact employers?

Right to Employment Benefits

As we have previously indicated, the most significant impact of Senate Bill 30 is likely to be on employment benefits. When the law takes effect, employers will be required to provide partners in a civil union with the same benefits that they provide to partners in a marriage. The Act would not cover those currently not protected by the Delaware Discrimination in Employment Act (DDEA): (a) employers with less than 4 employees; or (b) religious corporations with respect to discrimination based on sexual orientation

Equality of Benefits

Employers should also be aware that equality of benefits is a two-way street. Many employers previously offered employment benefits to unmarried same-sex partners, but not to unmarried heterosexual partners. Now that same-sex couples have access to civil unions that are substantively identical to marriage, employers may be open to claims of reverse discrimination if they continue to offer benefits to same-sex partners who have not entered into a civil union, but do not offer the same benefits to unmarried heterosexual partners.

Employers should also be careful to impose the same requirements for receipt of benefits upon same sex civil union partners as they do upon married partners. While it is perfectly acceptable to ask an employee to verify his or her marital status before extending benefits, the same requests should be made of both same-sex and heterosexual partners. If you do not require a copy of a marriage certificate to establish benefits, you should not require a copy of a civil union certificate.

Discrimination Protection

As we have previously reported, the DDEA already protects Delaware employees from discrimination on the basis of sexual orientation. Keep in mind that homosexual individuals who may not have previously chosen to disclose that fact may, as a result of the new law, disclose that information so that their partner may enjoy benefits. Therefore, employers may possibly have knowledge of an employee’s protected class they might not otherwise have had – and should proceed cautiously with any adverse employment actions, particularly ones that may follow closely on the heels of such disclosure.

This post was authored by Adria B. Martinelli and Lauren Moak.  Adria will be speaking about the implications of Delaware's Civil Union and Equality Act of 2011 at our upcoming Annual Employment Law Seminar on May 11, 2011. 

If you were hoping to be able to sock away more money into your 401(K) Plan in 2011 than you did in 2011, fuggedaboutit! The maximum elective deferrals for 2011 remains the same as it was for 2009 and 2010 -- $16,500. The catch-up contribution limitation for those who are at least age 50 during 2011 is also unchanged at $5,500. The annual limit on compensation remains at $245,000, the defined contribution limit on contributions remains at $49,000 and the maximum benefit payable from a defined benefit remains at the lesser of 100% of compensation or $195,000.

Congress established the method by which the IRS determines the inflation adjusted annual benefit plan limitations. However, it seems like bad public policy to limit amounts that will be payable to employees upon retirement by the current cost of living increases, especially when the stock market is performing sluggishly.

Look for the complete listing of the adjustments to the benefit limitations when we publish our 2011 Benefits Update Card, a link to which will be posted on this blog.

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.

The provisions of the Affordable Care Act of 2010 (the “ACA”) that require employers to report the aggregate cost of employer-sponsored health-care coverage on 2011 Forms W-2 will be optional and not mandatory. According to the IRS, this interim relief is being provided to allow employers to make necessary changes to their payroll systems. The IRS has also announced that it anticipates issuing guidance on this reporting requirement prior to the end of 2010. The ACA requires the “aggregate cost” is to be determined under rules similar to the rules for determining the “applicable premium” under COBRA. The aggregate cost will include the portions of the cost paid by both the employer and the employee.

Notice 2010-69

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents businesses and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

Health care reform is now law and many of the so called “insurance market reforms” go into effect for most employers on January 1, 2011. However, the portion of the law that will require certain large employers to offer and contribute to employees’ health insurance or pay a penalty are deferred until 2014.

Under the law, effective January 1, 2014, each Applicable Large Employer must offer minimum essential coverage to its full-time employees (and their dependents) or it will be required to pay a penalty for each month that any of its full-time employees purchases health insurance through a state health insurance exchange (“Exchange”) and receives a tax credit or cost-sharing reduction (generally granted to individuals based on income levels).

An Applicable Large Employer is one that employed an average of at least 50 full-time employees during the preceding calendar year. A full-time employee is one who for any month works an average of at least 30 hours or more each week is counted as one employee and those employees who work less than 30 hours per week are counted as proportionate employees based on 30 hours per week. An Applicable Large Employer will be subject to the penalty only if the employer has any full-time employees who are certified as having purchased health insurance through an Exchange and received a tax credit or cost-sharing reduction.

In 1989, when the Internal Revenue Service wrote the first proposed regulations for health flexible spending accounts (“FSAs”), it came up with the requirement that health FSAs must exhibit the “risk-shifting and risk-distribution characteristics of insurance”. This concept has been translated into of the “uniform coverage” rule.

The uniform-coverage rule requires that the maximum amount of an employee’s elective contributions to a health FSA must be available from the first day of the plan year to reimburse the employee’s qualified medical expenses. This means that if an employee elects to contribute to the health FSA $100 per month for the year, the employee must be reimbursed for qualified medical expenses up to the full $1,200 from the first day of the year, regardless of the amount actually contributed to the plan at the time that reimbursement is sought.

Under the uniform-coverage rule, an employee can potentially terminate employment having been reimbursed under the health FSA for more than she contributed up to the time of her termination. This rule has caused most employers to limit the amounts that employees can contribute to a health FSA, even though, prior to the effective date of provisions in the recent healthcare reform legislation ($2,500 annual cap after 2012), there is no statutory limit on contributions to health FSAs.

On March 26, 2010, the IRS released Chief Counsel Advice No. 201012060 (pdf), in which the Chief Counsel concluded that, if an employee's reimbursements from a health FSA exceed her contributions to the health FSA at the time of the termination of her employment, the employer cannot recoup the difference from the employee. Neither the previous proposed regulations nor the current proposed regulations regarding health FSAs (Prop. Treas. Reg. § 1.125-5(d)(1) (pdf)) stated explicitly that such recoupment is not permitted. This has always been known by practitioners to be the rule, much to the chagrin of our clients. Any attempt at recoupment of this sort will remove the risk shifting/risk distribution and result in the loss of favorable tax status for the benefits paid under the health FSA.

*This post was written by Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

The Patient Protection and Affordable Care Act signed last week by President Obama will affect employers in numerous ways, many of which have not yet been explored in detail, owing to the newness of the law.  One provision of the law that is certain to have a very real impact on employers across the country but that we have heard virtually nothing about is Section 4207.  Section 4207, titled, Reasonable Break Time for Nursing Mothers amends the Fair Labor Standards Act (“FLSA”).  Because it is born to the FLSA, its provisions apply to almost all employers—every employer engaged in interstate commerce of at least $500,000 per year, hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies. 

So, what does the new law require?  Quite a bit. The Act adds the following to Section 7 of the FLSA as a new subsection (r):

An employer shall provide:

(A) a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth; and
(B) a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

There are some exceptions to these requirements.

First, employers are not required to pay employees who take a breastfeeding break—unless, of course, there is a state law that says otherwise.  Second, an employer with less than 50 employees is exempt from the requirements if the requirements would “impose an undue hardship” by causing it “significant difficulty or expense” as compared to the employer’s size, resources, and the structure of its business. 

The IRS recently announced the results of two special audit programs it conducted. The first program involved audits of approximately 50 Form 5500 filings for defined contribution plans with asset values greater than $100,000 but less than $250,000. The second program audited 50 401(k) plans covering three to eight participants. Surprisingly (maybe not, given our experience), the most common error revealed by both projects was the failure to have the plan adequately bonded as required by ERISA section 412.

The amount of bond required by ERISA is 10% of the assets in the plan but not less than $1,000 and but not more than $500,000 ($1,000,000 for plans that hold employer securities). The bond must cover all persons, including fiduciaries, who handle funds or other property of an employee benefit plan. The purpose of the bond is to protect the employee benefit plan from risk of loss due to fraud or dishonesty on the part of persons who handle plan funds. The United States Department of Labor’s Field Assistance Bulletin No. 2008-04 discusses the bonding requirements in an FAQ format. 

Note that an ERISA fidelity bond, which is required, is not the same as fiduciary liability insurance, which is not required. Fiduciary liability insurance covers the fiduciaries of the employee benefit plan in the event of a breach their fiduciary duties, which may involve imprudence but may not rise to the level of fraud or dishonesty. If there is no bond available when a defalcation occurs, those responsible for obtaining the bond could be liable to the plan for its losses. An ERISA bond can usually be obtained through your property and casualty insurance broker.

*This post was written by guest blogger, Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

The eligibility for the COBRA premium subsidy was about to expire for those individuals who are involuntarily terminated and become eligible for COBRA benefits after December 31, 2009.  However, on December 21, 2009, the President signed legislation that extends the eligibility for the subsidy to those individuals who are involuntarily terminated and become eligible for COBRA coverage before February 28, 2010. 

The legislation also extends from 9 months to 15 months the length of the subsidy period and the extension applies to those who became eligible for the subsidy after February, 2009, even if their initial nine months has already expired.  The extension is retroactive for those individuals who lost COBRA coverage because they stopped paying the premiums due to the expiration of their subsidy.  Thus, individuals who became eligible for the subsidy in March were subsidy eligible through November 30, 2009.  If such an individual did not pay his or her December, 2009 COBRA premium because the subsidy expired, the individual can re-enroll in COBRA and receive the subsidy for December, 2009 (without any gaps in coverage) and another 5 months until May, 2010.

The COBRA subsidy extension was attached to H.R. 3326, the Department of Defense appropriations bill for the fiscal year ending September 30, 2010 which passed by an overwhelming vote in the House of 395 to 35.  According to Rep. Charles Rangel, D-N.Y., chair of the House Ways and Means Committee, “This bill ensures that workers who have lost their jobs through no fault of their own will not lose the unemployment and health benefits they rely upon to provide for their families.  The immediate benefits and assistance provided in this bill help provide some measure of economic security for millions of our fellow Americans struggling during this holiday season, helping ease their pain as they search for their next job opportunity.”

More to come as details of the legislation emerge.

See also, ARRA COBRA Subsidy Information

*Written by guest author Timothy J. Snyder, Esq.  Tim is the Chair of Young Conaway’s Tax, Trusts and Estates, and Employee Benefits Sections.  His primary area of practice is employee benefits, which involves both the benefit provisions of provisions of the Internal Revenue Service and ERISA.  He represents business and professionals in establishing, monitoring, and administering employee-benefit plans, new comparability retirement plans, non-qualified deferred-compensation plans, health, disability and life benefits, COBRA, HIPAA, ADA and ADEA.

As 2009 winds down, it’s a good time to reflect on the most important employment law developments in what has been a very busy year. Here are my top 10:

The substitution of paid leave for unpaid FMLA leave occurs often.  A employee eligible for FMLA leave will substitute accrued vacation, sick, medical, or other similar types of paid leave so that he avoids a loss of pay during the leave.  In most circumstances, employers also benefit because, when substitution occurs, the time counts against both the employee’s FMLA and paid time off entitlements.

Under the prior FMLA regulations, substitution of paid leave could be abused.  For example,  vacation leave was required to be substituted for any FMLA leave.  Common restrictions imposed on the use of vacation such as advanced notice or requiring it to be used in minimum blocks of time could not be imposed to prevent substitution.  This ready availability of paid leave surely was very tempting to some employees that could not otherwise use such time.

The new FMLA regulations, however, give employers the ability to reduce abuse.  Under the new 29 C.F.R. § 207, employers can require employees to meet all of the normal requirements of paid leave policies before permitting substitution.  For example, if a policy requires that vacation be taken in full day increments, an employer can deny substitution for an employee’s one-half day FMLA leave.  Similarly, if vacation time cannot be taken during a particular month, substitution could be denied during that time period.

The consequences of the new rule are obvious.  Employees might now be required to take unpaid FMLA leave rather than substitute paid leave.  As a result, the temptation to use the FMLA to obtain paid leave that they otherwise would not be entitled is eliminated.

Department of Labor (DOL) has updated its COBRA Subsidy website.  Added to the resources already available are the IRS Notice 2009-27 and an expanded FAQ for employers with new Q&As on the model notices.

In case you missed it, here's a recap on of the major COBRA changes:

The American Recovery and Reinvestment Act of 2009 (ARRA), provides for premium reductions and additional election opportunities for health benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009, and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008, and ending December 31, 2009, due to an involuntary termination of employment that occurred during that period. The TAA Health Coverage Improvement Act of 2009, enacted as part of ARRA, also made changes with regard to COBRA continuation coverage.

You may also want to review our previous posts on this issue, beginning with Tim Snyder's Guidance for Employers on the New COBRA Subsidy. Delaware employers, of course, can learn first-hand about the changes at our Annual Employment Law Seminar, on April 29, 2009.

Tax-Free Qualified Transportation Fringe Benefits

By now, most employers are aware that they can provide tax-free transportation fringe benefits of parking, transit pass, van pooling and bicycle commuting reimbursement benefits to their employees. What never seemed appropriate from a policy (and fairness) viewpoint was that the monthly exclusion amount for parking far exceeds the amount allowed for transit passes and van pooling. In addition, employees can simply be reimbursed for the cost of their monthly parking while only transit passes (if available) are the only means of providing the benefit for public transportation. A “transit pass” is any pass, token, fare card, voucher, or similar item entitling a person to transportation (or transportation at a reduced price):

(1) on mass transit facilities (whether or not publicly owned), including, for example, rail, bus, and ferry; or

(2) provided by any person in the business of transporting persons for compensation or hire, if this transportation is in a highway vehicle with a seating capacity of at least six adults (excluding the driver).

Beginning in January 2009, the maximum monthly exclusion for parking is $230 and the maximum exclusion for transit passes and van pooling is $120. The monthly exclusion for bicycle commuting reimbursement is $20.

ARRA Increases Transit Pass And Van Pooling Benefit Exclusion

ARRA has temporarily leveled the playing field for tax exempt transportation fringe benefits. Beginning in March 2009 and through December 2010, the maximum exclusion for transit passes and van pooling will be the same as the exclusion for parking. Thus, for the remainder of 2009, transit passes and van pooling benefits valued up to $230 per month will be excluded from the income of the employees who receive such benefits. For 2010, the monthly exclusion for parking, transit passes and van pooling will the inflation adjusted $230 exclusion amount for parking. The exclusion for bicycle commuting reimbursement benefits remains unchanged by ARRA.

Salary Deferrals for Pre-Tax Transportation Fringe Benefits

Employers who cannot afford the increased benefits (or any transportation fringe benefits) can adopt an arrangement to permit their employees to pay for parking, van pooling and transit passes from their compensation with pre-tax dollars, up to the monthly exclusion amount. And, unlike cafeteria plans that require generally irrevocable annual elections to defer income, the pre-tax transportation fringe benefit arrangement can permit employees to change their deferral amounts monthly so long as the change relates only to income that is not yet payable to the employee.

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This post was written by Guest Blogger, Timothy J. Snyder, Esq., Chair of the Tax/Trusts & Estates and Benefits Section at Young Conaway.  Tim has posted several important pieces on the impact on employers of the recently passed Economic Stimulus package.  For employers who haven't yet gotten up to speed on the numerous ways in which ARRA is changing the world of employee benefits, Tim's posts are a great place to start, beginning with the very helpful Guidance for Employers on the New COBRA Subsidy.  Also, be sure to get the new forms provided by the U.S. Department of Labor and the IRS, which you can do at these posts:  DOL Releases Model COBRA Notices and  Stimulus Package's COBRA Subsidy: Guidance Update.

Maribeth L. Minella has also provided helpful commentary on the employment-related effects Stimulus Package.  Her previous posts include:

Stimulus Package Provides for Employee Whistleblower Protection

American Recovery & Reinvestment Act Provides Tax Benefits for Some Employers

Governors Reject Stimulus Funds Marked for Expanding Unemployment Benefits

More Employer Compliance Issues from Stimulus Package

Stimulus’ COBRA Premium Subsidy Puts Burden on Employers

Model COBRA Notices have been released by the U.S. Department of Labor (DOL).  There are four Model COBRA Notices in all, which are required to effectuate the provisions of the 65% governmental subsidy of COBRA premiums enacted as part of ARRA.

The Four Model COBRA Notices

The first model COBRA Notice is the General Notice.  It has been released in a full-length version, consisting of 13 pages, and an abbreviated version, totaling 9 pages in length.  The abbreviated version constitutes the second model COBRA Notice.

The General Notice informs Qualified Beneficiaries (QBs) of their right to elect COBRA coverage, the cost of the coverage, and the provisions of the COBRA premium subsidy--all in a Q & A format. The full version should be used for a QB who has just incurred a qualifying event and is entitled to elect COBRA coverage.The abbreviated version is to be provided to those QBs who had a qualifying event on or after September 1, 2008, and who are currently enrolled in COBRA coverage.

The third Notice is the Notice in Connection with Extended Election Periods.  This Notice is to be provided to those QBs who

• are or would be eligible for the subsidy but are not now enrolled in COBRA coverage; or
• were enrolled in COBRA coverage and subsequently discontinued coverage with regard to qualifying events that occurred on or after September 1, 2008, and on or before February 16, 2009.

The Fourth Notice is for use by insurers that provide group health-insurance coverage to persons who became eligible for continuation coverage under a state law.  The DOL points out that the continuation coverage requirements vary among states, and insurers must modify this model notice as necessary to conform it to the applicable state law.  All of the Notices have optional pages to be used if the employer chooses to allow the QBs to elect alternative, cheaper medical coverage.

All of the Notices include a form entitled Request for Treatment as an Assistance Eligible Individual.  This form must be completed by the QBs and returned to the employer for a determination by the employer of whether the QBs are entitled to the COBRA subsidy. If the employer determines that the QB is not entitled to the subsidy, the QB can appeal that denial to the DOL.

Now What?

Now that the DOL has issued the Model Notices, employers can begin notifying QBs of the availability of the COBRA premium subsidy available under ARRA. 

• All QBs who had qualifying events on or after September 1, 2008, and had not elected COBRA by February 17, 2009.
• Those QBs already covered by COBRA on February 17, 2009 must be provided with the appropriate Notice no later than April 18, 2009.

The subsidy must be provided beginning with the March 2009 COBRA coverage. At this point, it doesn’t seem that employers would be able to get the appropriate notices out to the QBs and make a determination of whether they are entitled to the subsidy in time for the payment of the April COBRA premiums. Therefore, employers should get the Notices out as soon as possible so that the QBs can return the completed forms and employers can make the determinations regarding a QB’s status as an Assistance Eligible Individual in time for the payment of the May premiums.  This means that the employers will be providing the Assistance Eligible Individuals with either refunds or credits for the amount of the premiums that they paid for March and April coverage that exceeded 35% of the premiums.

This post was written by Guest Blogger, Timothy J. Snyder, Esq., Chair of the Tax/Trusts & Estates and Benefits Section at Young Conaway.  Tim posted earlier this month offering very helpful Guidance for Employers on the New COBRA Subsidy.  Maribeth L. Minella has also provided helpful commentary on the employment-related effects Stimulus Package.  Her previous posts include:

Stimulus Package Provides for Employee Whistleblower Protection

American Recovery & Reinvestment Act Provides Tax Benefits for Some Employers

Governors Reject Stimulus Funds Marked for Expanding Unemployment Benefits

More Employer Compliance Issues from Stimulus Package

Stimulus’ COBRA Premium Subsidy Puts Burden on Employers

Download this

Included in the package are the following:

• IRS Revised Form 941 (Employers Quarterly Federal Tax Return)
• IRS Instructions for Revised Form 941
• DOL FAQ and Fact Sheet
• DOL Flyer for Employers
• Model COBRA Notice: General Notice (full)
• Model COBRA Notice: General Notice (abbr.)
• Model COBRA Notice: Notice in Connection with Extended Election Periods
• Model COBRA Notice: Request for Treatment as an Assistance Eligible Individual

The American Recovery and Reinvestment Act of 2009 (ARRA) provides certain employees the opportunity to collect a subsidy equal to 65% of COBRA continuation premiums for themselves and their families for up to 9 months.  We've posted about the new COBRA subsidy previously and those posts contain important details on how the subsidy affects employers.  Here it is, though, in a nutshell:

Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months.

Eligible workers will have to pay 35 percent of the premium to their former employers.

To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009. Workers who lost their jobs between Sept. 1, 2008, and enactment, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy.

This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

The IRS and U.S. Department of Labor have posted several helpful documents recently.  We've packaged them for you in one nice little PDF Portfolio for your easy reference.

Included in the package are the following:

• IRS Revised Form 941 (Employers Quarterly Federal Tax Return)
• IRS Instructions for Revised Form 941
• DOL FAQ and Fact Sheet
• DOL Flyer for Employers

For our previous posts, see:

Guidance for Employers on the New COBRA Subsidy

Stimulus Package Provides for Employee Whistleblower Protection

American Recovery & Reinvestment Act Provides Tax Benefits for Some Employers

Governors Reject Stimulus Funds Marked for Expanding Unemployment Benefits

More Employer Compliance Issues from Stimulus Package

Stimulus’ COBRA Premium Subsidy Puts Burden on Employers

The COBRA subsidy in the Economic Stimulus Plan (ARRA), will be available to “Assistance Eligible Individuals.” To qualify, the employee must satisfy two requirements. First, the employee must have been involuntarily terminated for reasons other than gross misconduct between September 1, 2008, and December 31, 2009. Second, the employee must have either (a) declined COBRA; or (b) elected COBRA but dropped off for a reason that would not have disqualified him for coverage (for example, inability to pay the premiums).

Assistance Eligible Individuals who were not covered by COBRA on the date of the enactment of ARRA must receive a notice of their right to elect COBRA by April 18, 2009. If they do elect coverage, the coverage and the subsidy will be effective March 1, 2009. The subsidy is for 65% of the COBRA premium.

For those individuals who are already on COBRA, employers have 60 days to effectuate the COBRA subsidy. If the Assistance Eligible Individuals pay the full premium for March and April 2009 coverage, the employer can either give them a credit for the subsidy against future premiums or refund the subsidy to them. Individuals on COBRA must also receive notice of the subsidy by April 18, 2009. The United States Department of Labor (DOL), was directed in ARRA to produce a model notice for the subsidy.

The subsidy is available for nine months or until the end of the COBRA coverage period, if sooner. It will not otherwise extend the COBRA coverage period. Those whose employment terminates involuntarily before December 31, 2009, will be entitled to the subsidy, which means that the subsidy will be provided through September 2010. The subsidy is phased out for single individuals with adjusted gross income between $125,000 and $145,000, and $250,000 to $290,000 for those filing joint returns. The COBRA subsidy is otherwise not taxable to the recipients. The employer is reimbursed for the subsidy by taking a credit against its payroll tax deposit obligation and will be reported on the revised Form 941. If the COBRA subsidy amount exceeds the employer’s payroll tax obligation, the employer will receive a refund from the IRS.

The government information being issued to assist employers and employees in administering the subsidy is being posted on the Internet. The DOL and the IRS both have posted documents to guide employers through the administration of the new subsidy. (See the DOL’s “COBRA Continuation Coverage Assistance Under The American Recovery and Reinvestment Act of 2009” with links to a COBRA Premium Fact Sheet and COBRA FAQs, and the IRS’s “COBRA: Answers for Employers”).

This post was written by Guest Blogger, Timothy P. Snyder, Esq., Chair of the Tax/Trusts & Estates and Benefits Section at Young Conaway.  Maribeth L. Minella has also provided helpful commentary on the Stimulus Package.  Her previous posts include:

Stimulus Package Provides for Employee Whistleblower Protection

American Recovery & Reinvestment Act Provides Tax Benefits for Some Employers

Governors Reject Stimulus Funds Marked for Expanding Unemployment Benefits

More Employer Compliance Issues from Stimulus Package

Stimulus’ COBRA Premium Subsidy Puts Burden on Employers