IRS Releases Updated Form 941 For Employers To Report Cobra Premium Assistance Payments

By Richard A. Hanrahan

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (“the Act”) into law. The Act makes significant changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), and allows certain assistance-eligible individuals of COBRA the right to receive a 65% subsidy on their premium payments.

In particular, assistance-eligible employees, involuntarily terminated between September 1, 2008 and December 31, 2009, must pay 35% of the COBRA premium, while employers must pay the remaining 65%. However, employers may recover the 65% subsidy provided to assistance-eligible individuals by completing the IRS updated Form 941 (Rev. January 2009), Employer’s Quarterly Federal Tax Return.

Employers must claim the COBRA premium payments on Line 12a of Form 941. The assistance payments on Line 12a may result in overpayment of taxes, in which employers can elect to offset their payroll tax deposits or claim the subsidy as a refund at the end of the quarter. Employers must also include the number of individuals provided COBRA premium assistance on Line 12b.

In addition to properly filing out the new Form 941, employers must maintain supporting documentation for the tax credit or refund, including:

• Receipt of the employee’s 35% share of the premium, including dates and amounts;
• For insured plans: a copy of invoice or a similar statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier;
• For self-insured plans: proof of the premium amount and coverage provided to the assistance eligible individuals;
• Declaration and date of the former employee’s involuntary termination (which must be between September 1, 2008 and December 31, 2009);
• Proof of each assistance eligible individual’s eligibility and election for COBRA coverage at any time during the period from September 1, 2008 and December 31, 2009;
• A record of all covered employees’ social security numbers, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one (1) or more individuals; and,
• Other documents necessary to verify the correct amount of reimbursement

The filing date for the updated Form 941 will not be extended. Therefore, it is imperative that employers complete Form 941 on time and maintain the proper documentation. The IRS states it will send the new Form 941 to about 2 million employers sometime in mid-March. However, employers can retrieve the updated Form 941 at: http://www.irs.gov/pub/irs-pdf/f941.pdf.

The Department of Labor, Department of Health and Human Services, and the IRS share responsibility for implementing the COBRA requirements. For further details on Form 941, refer to the IRS link: http://www.irs.gov/instructions/i941/index.html.

(For more details on the changes to COBRA read our firm’s prior alert: “The COBRA Clutch: The Stimulus Bill Alters COBRA”).