What is COBRA?

Back in 2009, President Obama signed a stimulus package aimed to help the struggling economy. This stimulus package included an employer credit, known as COBRA Premium Subsidy. This employer credit will help cover the cost of health care coverage for employees who involuntarily lost their employment between September 1, 2008 through May 31, 2010. How? Eligible workers pay 35 percent of the health insurance premium, while employers pay the remaining 65 percent. Employers then report these COBRA payments on their federal payroll forms, applying the 65 percent credit towards their payroll taxes, or asking for a refund from the IRS.   

COBRA Changes for 2014 and Beyond

While the government continues to support the credit for those who are eligible, the process for reporting and claiming COBRA credits changed on January 1st, 2014.

Who? Any employer who claims COBRA premium assistance payments as a credit on Forms 941, 943 or 944.

How? Instead COBRA payment credits will now be claimed on the corresponding "adjusted" form. For example:

  • Filing Form 941? Use Form 941-X
  • Filing Form 943? Use Form 943-X
  • Filing Form 944? Use Form 944-X

The IRS requires employers to first file an original return (Form 941, 943, 944), wait a period of 2 weeks (at a minimum), and then claim COBRA credits on the corresponding adjusted Form 94-X. 

Are there changes to how I take the credit? The government continues to provide eligible employers two options for taking the credit; however it is important to understand the impact of each.
 
  • Option 1: Do NOT reduce your payroll tax deposits in anticipation of your COBRA credit, and wait to claim the credit on the corresponding adjusted Form 94-X, in the form of a refund (Recommended option, and the only option if using Intuit Assisted Payroll)
  • Option 2: Reduce your payroll tax deposits in anticipation of your COBRA credits (IMPORTANT: Because the credit is now claimed on the corresponding adjusted Form 94-X, which is filed AFTER filing the original return (Form 941, 943, 944), reducing your payroll tax deposits in anticipation of the credit will generate a balance due notice from the IRS. This balance due will be corrected when filing the corresponding adjusted Form 94-X.

Want a visual of these options? Check out our flowchart, designed to breakdown these steps. Also, don't forget to print out the updated COBRA user guide for step-by-step instructions.

 

I have Additional Questions...

How does this change my COBRA payment tracking in QuickBooks? You can continue to track your COBRA payments in QuickBooks. Our updated COBRA user guide will provide you with the steps needed, depending on how you choose to take your credit (Option 1 (Recommended, and the only option if using Intuit Assisted Payroll): not reducing your payroll tax deposits, or Option 2: reducing your payroll tax deposits in anticipation of your COBRA credits).

I've Reduced my Payroll Tax Deposits in the Current Quarter but don't want to continue doing so, in order to prevent an IRS notice. You can stop reducing your payroll tax deposits in anticipation of your COBRA credits at any time. However, if you've reduced deposits in the current quarter, and then start making your deposits in full for the remaining of the quarter, chances are your original return (Form 941, 943, or 944) will still reflect a balance due, and therefore trigger a notice from the IRS. Again, this will be corrected when claiming your COBRA credits on the corresponding adjusted Form 94-X. Not reducing your tax deposits in anticipation of your COBRA credits is the ONLY way to prevent an IRS balance due notice.

Can I File the Corresponding Adjusted Form 94-X at the Same Time I File My Original Return ? No. The IRS has instructed the corresponding adjusted Form 94-X to be filed AFTER filing the original return (waiting a period of 2 weeks, at a minimum); doing so can result in processing delays.

Can I Make Other Corrections When Filing Form 94-X to Claim my COBRA Credits? No. Reporting corrections other than for COBRA credits can result in processing delays. Other corrections will need to be reported on a separate Form 94-X. The IRS has instructed COBRA corrections on Form 94-X be flagged, by writing "COBRA" in dark, bold letters across the top margin of page 1 of Form 94-X.

What if I need to Correct COBRA Payments Reported Before Jan. 1, 2014? Form 94-X is now used to report both current quarter COBRA payments, and corrections to previously reported COBRA payments.

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