Form 941: Employer Quarterly Federal Tax Return And COBRA Premium Assistance Payments
Published March 2010
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009 by President Obama. The ARRA allowed for a 65% government subsidy of COBRA premiums for American workers involuntarily terminated from employment. This COBRA subsidy was extended on December 19, 2009 to continue assistance for struggling American workers. Employers are required to cover the 65% of COBRA premiums up front as assistance for their former employees. The 65% of COBRA premium assistance paid by employers are refunded by the Federal government in the form of a tax credit.
How the Employer’s 65% Share of COBRA Premium Assistance Payment is Calculated
This is best explained using a simple example:
Suppose an employee has a plan that costs $100. The COBRA premium would be $102.00 (including the 2% administration fee). The ARRA reduced premium (that the employee pays) would be $35.70 ($102.00 * 35%). To calculate the employer’s 65% tax deduction, use the following formula.
Total Equivalent Premium = (Premium Received – ARRA Ineligible Premium) / .35
Employer’s 65% Reduction = (Total Equivalent Premium – Premium Received)
Total Equivalent Premium = $35.70 / .35 or $102.00.
Employer’s 65% Reduction = ($102.00 – $35.70) or $66.30
About IRS Tax Form 941 and Claiming COBRA Premium Assistance Payments
IRS tax Form 941 is for employers to file quarterly federal tax payments and is also the way for employers to be refunded their COBRA premium assistance payments. Form 941 includes lines 12a and 12b, which is where employers claim tax credits for the COBRA premium assistance payments they made on behalf of their former employees. Employers must add up all of the COBRA subsidy payments and enter that amount for line 12a and the number of individuals provided with COBRA premium assistance on line 12b.
BASIC COBRA Eliminates the Need for Clients to Calculate COBRA Premium Assistance Payments
Clients of BASIC COBRA don’t have to worry about looking up all of the information for making the complex calculations needed to fill out lines 12a and 12b. Clients receive reports for each month about the amount of COBRA premium assistance that was paid and on behalf of whom. An example of the report is available in PDF format by clicking here. In case of an IRS audit of a client, BASIC maintains all of the COBRA documentation that the IRS would request of a client from the start of COBRA administration moving forward. However, BASIC does recommend for clients to keep any COBRA documentation they have that is dated before BASIC took over COBRA administration.
BASIC COBRA and BASIC Payroll Plus Work Seamlessly to Complete Form 941 On Behalf of Clients
Employers who are clients of BASIC COBRA and BASIC Payroll Plus enjoy having Form 941 filed completely by BASIC. BASIC COBRA keeps track of all COBRA premium assistance payments and reports those payments directly to BASIC Payroll Plus when Form 941 needs to be filed thereby removing the need for employers to manually figure out the amount COBRA subsidy payments. Because these two services work seamlessly together, COBRA premium assistance payments are automatically entered into Form 941. After BASIC Payroll Plus completes the remainder of Form 941, it is electronically submitted to the IRS and a copy is sent to the client, finishing the process.