Employers claim more than $2 billion in COBRA subsidy payroll tax credits

U.S. employers have claimed more than $2 billion in COBRA premium assistance against payroll tax withholding, the U.S. Treasury Department recently reported. As many as two million U.S. households have benefited from COBRA premium assistance.

Temporary subsidy

Qualified individuals may extend their employer-provided group health coverage after a voluntary or involuntary termination of employment under COBRA. The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) temporarily reduced the cost for COBRA coverage for assistance eligible individuals. Individuals who are eligible for COBRA coverage because of their own or a family member's involuntary termination from employment may be eligible to pay a reduced premium. The involuntary termination must have occurred between September 1, 2008 and May 31, 2010.

The premium subsidy allows assistance eligible individuals to pay only 35 percent of the premium for COBRA coverage. Employers pay the remaining 65 percent of the premium. Employers are reimbursed through a payroll tax credit.

Payroll credit

The Treasury Department discovered that more than 300,000 payroll tax credit claims were filed by employers through early 2010. These employers claimed payroll tax exceeding $2 billion in COBRA premium assistance. The Treasury Department further reported that using a payroll tax credit to reimburse employers has kept the cost of administering the program at less than $2 million by the IRS.

Scope of benefit

The Treasury Department estimated the number of households that have benefited from the COBRA subsidy at approximately two million. Because many health plans cover spouses and dependents, the number of individuals receiving health coverage for which COBRA premium assistance was provided is likely to be higher, the Treasury Department predicted.

Eligibility for COBRA premium assistance expired after May 31, 2010. Several bills have been introduced in Congress to extend the eligibility period through the end of 2010. However, they have faced opposition by fiscal conservatives in both parties. Our office will keep you posted of developments.

Interim Report to The Congress on COBRA Premium Assistance, Department of the Treasury, June 2010