The IRS has added some new Q & As to its website which contains information on the new COBRA subsidy (see Q & As 25 through 37, added on 6/04/09). The most interesting of these is Q &A 25, which deals with whether an individual’s termination of employment is involuntary, so that the individual is entitled to the subsidy, and the employer is entitled to take a payroll tax credit for the subsidy. Specifically, the question asks under what circumstances will the IRS accept an employer’s determination that an employee’s termination of employment is involuntary for purposes of the employer’s being able to claim the payroll tax credit. The answer given is that, if an employer determines that an employee’s termination is involuntary, and the determination is consistent with a reasonable interpretation of the applicable statutory provisions and IRS guidance, the IRS will not challenge that determination. The employer must maintain supporting documentation of its determination that the termination is involuntary, including a written statement or other attestation by the employer of its conclusion.
This new Q & A is helpful to the employer. It reduces the risk that the employer’s determination that a termination of employment is involuntary, and the employer’s taking a corresponding payroll tax credit, could later be challenged by the IRS. The IRS website containing information on the new COBRA subsidy is here.