Uncle Sam wants small-business owners to take notice of a new health-care tax credit — one of the first provisions of the recently enacted health-reform law to go into effect.

Last week, the Internal Revenue Service announced that it’s sending postcards to more than four million small businesses urging them to check if they qualify for the tax break. It’s being offered in two phases, with the first worth up to 35% of qualifying businesses’ premium health-care costs for tax years 2010 through 2013. The rate increases to 50% in 2014. The maximum length of potential coverage for qualifying employers is six taxable years: four years under the first phase and two years under the second.

In general, to be eligible for the tax credit, businesses must cover at least 50% of the cost of health-care coverage for some of their workers, employ fewer than the equivalent of 25 full-time workers and pay average annual wages below $50,000. The IRS says the tax break is designed to encourage smaller businesses – which are not mandated by 2014 to provide health care, unlike companies with more than 50 employees – to offer health coverage to their low- and moderate-income workers.

Tammy Rostov, owner of Rostov’s Coffee & Tea in Richmond, Va., says she received the IRS’s postcard and expects her small retail business to be eligible for the credit. She offers health coverage to her five full-time employees and pays 100% of the premium, an amount that she says has increased by more than 200% over the past six years. She describes the tax credit as a welcome relief. “It’s a step in the right direction,” she says.

But other qualifying business owners are less enthusiastic, arguing that the tax break won’t make a significant impact on their bottom lines.

Pascal Helou, owner of Globotron LLC, a technology-consulting company in New York, says affording health insurance for his three employees is a non-issue given that he’s struggling these days just to stay in business. Since 2007, he says sales have declined 30% every year and his firm now has four clients, down from 15.

“For my business, this type of tax credit will not make a difference,” says Mr. Helou, adding that he has yet to receive the IRS’s postcard about it. “The real issue is the amount of business we’re getting. Nobody’s willing to spend money” on technology-consulting services.

Meanwhile, there are also some entrepreneurs who don’t believe the government should provide financial incentives for small businesses to offer health coverage to workers in the first place.

Jim Fab, owner of Fab Electric Inc., an electrical contractor business in Gaithersburg, Md., falls into this camp. Providing health insurance and other benefits to his 18 employees, he says, is “hopefully what separates me from the electrical contractor that doesn’t.”

Some small businesses appear to be left without any government aide under the new piece of health-reform legislation. These include organizations with between 25 and 50 employees and ones with less than 25 employees but payrolls that average $50,000 or more.

Tracy Betts, says her Springfield, Va., Web-design business, Balance Technology Group Inc., doesn’t qualify for the credit. While she employs the equivalent of eight full-time workers, their salaries’ average $71,000. “For me, it’s all about the programmers, and I can’t hire anyone for less than $90,000 (in annual pay),” she says.

Ms. Betts says a year and half ago she told her staff she could only afford to offer them either health-care coverage or a retirement-savings plan with a matching contribution from the company. All but one chose the latter benefit, she says.

• The extension of the eligibility period for the COBRA subsidy through May 31, 2010.
• A new special election period and related notice requirement for individuals who experience a qualifying event that is related to a termination of employment on or after April 1, 2010, and before April 15, 2010.

The excerpts below are from an article posted by the law firm of Drinker Biddle, a large national law firm.

Special Election Period

A health plan must extend a special COBRA election period to an individual who experienced an involuntary termination of employment on or after April 1, 2010, and prior to April 15, 2010, and who would be an “assistance eligible individual” (AEI) but who does not have a COBRA election in effect on April 15, 2010. The special election period runs from April 15, 2010, through the date 60 days after the Notice of Special Election Period is provided to that individual.

Note about effective date of COBRA subsidy. Although not specifically addressed in the Act, due to the short, 15-day gap between the expiration of the COBRA subsidy on March 31, 2010, and enactment of the Act, we believe that an individual’s COBRA subsidy becomes effective as of the first day of COBRA coverage if he or she elects coverage during the special election period.

Notice of Special Election Period

In the case of any individual who experienced a qualifying event related to a termination of employment on or after April 1, 2010, and prior to April 15, 2010, a plan administrator must provide the general COBRA notice, including a description of the availability of premium reduction in the case of a qualifying event that is an involuntary termination of employment, within 60 days of enactment of the Act (i.e., by June 14, 2010). If the plan administrator has already distributed the general COBRA notice to such individuals, then the plan administrator may simply supplement it with an additional notice describing the extension of the availability of premium reduction with respect to involuntary terminations through May 31, 2010, and the special election period.

Note about the notice requirement. The Act is not clear on whether this notice applies only to AEIs, or to any individual who has a qualifying event related to a termination of employment, whether voluntary or involuntary, during the period April 1, 2010, through April 14, 2010. The more conservative approach is for a plan administrator to provide the special election notice to any individual who experienced a qualifying event related to a termination of employment on or after April 1, 2010, and prior to April 15, 2010, in order to notify all individuals who may potentially be eligible for the COBRA subsidy, including those who an employer may have incorrectly classified as voluntarily terminated.

A Reminder – Expansion of Assistance Eligible Individuals

Under ARRA, only individuals who experienced a qualifying event that was an employee’s involuntary termination of employment could become AEIs and take advantage of the COBRA premium subsidy. The Temporary Extension Act of 2010 expanded the premium subsidy to include as a qualifying event for purposes of the subsidy, a reduction of hours that occurred at any time on or after September 1, 2008, and is followed by an involuntary termination of employment that occurs on or after March 2, 2010 (and before June 1, 2010). Individuals who experience a qualifying event that falls under this expanded definition and are otherwise eligible AEIs (Reduced Hours AEIs) will be eligible for the COBRA subsidy beginning with the first day of the first period of coverage for which the individual is a Reduced Hours AEI. The Reduced Hours AEI’s maximum continuation coverage period is determined as if the individual had elected COBRA when initially eligible due to the reduction of hours.

Action Items

Plan sponsors and administrators should consider the following immediate action items:

• Notices. Plan administrators should update their COBRA notices and other plan communications to include the extension of the eligibility period to May 31, 2010.
• Assess Prior Terminations. Identify covered employees (and their qualified beneficiaries) who became eligible for COBRA on or after April 1, 2010, and before April 15, 2010, as well as their COBRA elections. Provide an updated COBRA notice to these individuals that includes a description of the extended eligibility period and the special election period. Identify those employees and beneficiaries in the group whose qualifying event is the employee’s involuntary termination of employment and who are eligible for the COBRA subsidy.
• Continue to Monitor Reduced Hours AEIs. Plan administrators should continue to identify any Reduced Hours AEIs, and provide a new notice to them upon involuntary termination. An individual in this group may be eligible for the special election period if, upon a reduction in hours the individual did not elect, or elected and later discontinued, COBRA.
• Stay Tuned. Two separate bills in Congress propose to further extend the COBRA subsidy eligibility period through June 30, 2010, or year end.

COBRA Update, Again…]]> http://reddingbusinessandemploymentlawblog.com/2010/04/cobra-update-again/feed/ 0 http://reddingbusinessandemploymentlawblog.com/2010/03/details-on-the-new-hire-act-signed-by-president-obama/ http://reddingbusinessandemploymentlawblog.com/2010/03/details-on-the-new-hire-act-signed-by-president-obama/#comments Thu, 25 Mar 2010 18:33:41 +0000 Shawn McCammon http://reddingbusinessandemploymentlawblog.com/?p=177 President Obama recently signed the Hiring Incentives to Restore Employment (HIRE) Act, containing more than $17 Billion in tax credits designed to stimulate employment. The Act also includes $20 Billion for highway and transit infrastructure programs as well. One of the most important provisions for businesses is a tax credit for hiring from the ranks of the unemployed.

Under the Act, when an employer hires a “qualified employee” the employer is excused from paying the normal Social Security match of 6.2% of the wages in 2010. What is a qualified employee you ask? A qualifying employee is one who

• is hired after Feb. 3, 2010 and before Jan. 1, 2011;
• is not hired to replace another employee;
• is not related to the employer;
• and certifies under penalty of perjury that he or she has not been employed for more than 40 hours during the 60-day period ending on the date that employment begins with the new employer.

This incentive can save the employer over $6,000 annually for each qualified employee that is hired. Under certain circumstances, the employer who hires a new employee, and retains their services for 52 weeks, may also be able to receive an additional tax credit available on the 2011 tax return equal to the lesser of $1,000 or 6.2% of the wages paid to an employee for those 52 weeks.

These tax incentives are meant to spur job creation, especially for small businesses who are undecided about whether to begin to ramp up expansion efforts in light of recent economic challenges.

Here is the press release from the Ways & Means Committee Chair describing this bill.

Recently, however, the government signed the Defense Department’s 2010 appropriations bill (“2010 DOD Act”) that will allow laid-off workers to receive subsidized COBRA premiums for up to 15 months, which previously expired after 9 months.

The Department of Labor’s Employee Benefits Security Administration (EBSA) has released a fact sheet explaining how the 2010 DOD Act extends the COBRA subsidy enacted during the earlier economic stimulus package. In general, the 2010 DOD Act extended the COBRA premium reduction eligibility period for two months, through February 28, 2010 and increased the maximum period for receiving the subsidy from 9 to 15 months.

Also, the fact sheet reviews the eligibility requirements for the subsidy, the new period of coverage, and notice requirements that plan administrators must provide. The fact sheet explains that plan administrators are now required to provide notice about the changes made to the COBRA premium subsidy provisions to individuals who have already been provided a COBRA election notice, unless the election notice included the updated premium reduction information. The notices must be given to eligible individuals by February 17, 2010. Individuals who have been terminated on or after October 31, 2009 and will lose health coverage must be provided this notice “within the normal timeframes for providing continuation coverage notices.” Those who had reached the end of the reduced premium period before the legislation extended it to 15 months must be provided this notice within 60 days of the last day they were eligible to receive COBRA premium assistance under the old rules.

Title II of GINA, which prohibits genetic information discrimination in employment, took effect on November 21, 2009. The regulation applies to employers with more than 15 employees. Under Title II it is illegal to discriminate against employees or applicants because of genetic information. Title II of GINA prohibits the use of genetic information in making employment decisions, restricts acquisition of genetic information by employers and other entities covered by Title II, and strictly limits the disclosure of genetic information.

The EEOC enforces Title II of GINA (dealing with genetic discrimination in employment). The Departments of Labor, Health and Human Services and the Treasury have responsibility for issuing regulations for Title I of GINA, which addresses the use of genetic information in health insurance.