Payroll departments should note that the subsidy for continuing health insurance coverage for laid-off employees, and the associated payroll tax credit, implemented under the federal economic stimulus law will end Aug. 31, 2011. Under the American Recovery and Reinvestment Act (ARRA) of 2009, eligible individuals, defined generally as people involuntarily terminated from their jobs due to the slow-down of the economy, have been able to extend their health insurance coverage by paying their former employers 35% of the cost of coverage for up to 15 months. Prior to the passage of this legislation, under the Consolidated Omnibus Budget Reconciliation Act (COBRA), these former employees could extend their health coverage by paying 102 percent of the premium cost for up to 18 months.
Under this ARRA act, employers paid the resulting 65% difference in the cost of the former employees health insurance coverage. However, they were able to completely offset that cost with payroll tax credits. These credits resulted in a direct reduction in payroll taxes paid in and were defined on a quarterly basis on the employer’s 941.
The federal stimulus law originally applied the subsidy to individuals laid off between Sept. 1, 2008, and Dec. 31, 2009, but several extensions pushed the end date to May 31, 2010. The 15 month coverage period is now set to expire. The IRS did recently clarify that for those employees who delayed the start of COBRA, such as delays related to their severance package, use of banked hours, or other similar provisions of their lay-off, the expiration of their COBRA subsidy may go beyond the Aug. 31 expiration date.