IRS Posts Additional Q&As on COBRA Subsidy

In response to the many questions about the COBRA premium subsidy authorized by the American Recovery and Reinvestment Act of 2009 (ARRA), the IRS has posted additional Q&As. The new Q&As have been added to the end of the previous series of Q&As.

ARRA created a right to COBRA premium assistance for employees who were involuntarily terminated between September 1, 2008 and December 31, 2009. Employees eligible for assistance pay a reduced premium equal to 35% of the COBRA premium. The other 65% are paid by the employer who is, in turn, reimbursed by the federal government.

Included in the Q&As are the following welcome guidance:

• Determining Involuntary Termination of Employment
  Employers were concerned that problems might arise from challenges by the government that the terminations were not involuntary. The IRS has said that they will not challenge the determination as long as it is consistent with a "reasonable interpretation of the applicable statutory provisions and IRS guidance."
  
  
• Clarifications with Respect to Military Service
  The IRS has clarified that an involuntary termination of employment occurs when a member of a military Reserve unit or the National Guard is called to active duty. It does not matter whether the civilian employer treats the employee's absence as a termination of employment or a leave of absence.
  
  
• Treatment of COBRA Premiums Paid from an IRA
  Payment of the eligible employee's 35% share on a pre-tax basis from an HRA will be treated as paid by the employer.  This is because the HRAs are funded exclusively by the employer.  The employee will not be treated as paying the required 35% of the COBRA premium and, as a consequence, the employer will not receive a premium subsidy.

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