Payroll Tax Credit for Required Employer COBRA Payments

The American Recovery and Reinvestment Act of 2009 provides a subsidy for the cost of COBRA coverage for employees who are involuntary terminated between September 1, 2008, and December 31, 2009. The subsidy also applies to the employees family members who were covered under the plan immediately prior to the termination of employment. Assistance eligible individuals pay a reduced premium equal to 35% of the full COBRA premium. The employer pays the other 65% and then is reimbursed for the subsidy by the federal government by taking a credit on its quarterly payroll tax return (Form 941).