If you regularly employ at least 20 employees and offer health coverage, you are required to offer COBRA. This enables employees who leave the business to have coverage under the group plan for 18 months if they want to pay for it.
Under the American Recovery and Reinvestment Act of 2009, the federal government will pay 65% of the cost for nine months for those terminated from September 1, 2008, through December 31, 2009. The payment is made via a reduction in the employer’s employment taxes.
In effect, an employer receives a credit equal to the federal government’s COBRA subsidy. An employer can decide either to offset its payroll tax deposits or claim the subsidy as an overpayment at the end of the quarter when Form 941 is filed.
A revised Form 941 will be sent to about 2 million employers mid-March. The IRS has a list of questions and answers for employers involved in the COBRA subsidy credit.