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American Recovery and Reinvestment Act (ARRA) FAQs

The ARRA has many provisions, but 2 directly impact your payroll:

1. The Making Work Pay provision provides a credit of $400 for individuals and $800 for married filing joint returns. The tax credit begins to phase out for taxpayers making more than $75,000 for individuals or $150,000 for married couples filing jointly. Also included in the Making Work Pay provision is a new table for the advance earned income credit (EIC). A family with three or more qualifying children is entitled to 45% credit under the ARRA.
2. The COBRA subsidy provision allows involuntary terminated employees to pay only 35% of the COBRA premiums; and their ex-employers, the remaining 65%. The employer is reimbursed for their 65% portion through a federal payroll tax credit. While this subsidy is effective March 1, 2009, employees may be eligible if involuntarily terminated between September 1, 2008 and December 31, 2009.

How will my employees receive their “Making Work Pay” tax credit?

Payrolls processed after March 2, 2009 will calculate with the updated federal tax tables (Paycor for Windows clients see additional note about timing below). Your employees will automatically receive the credit as less federal income tax will calculate, resulting in more take-home pay. 

How does the Making Work Pay credit work for married couples filing jointly? How does Paycor know what a married couple filing jointly will make in a year?

The tax tables provided by the IRS are based on the individual’s income. When Paycor calculates the check the spouse’s income is not known and the calculation is based on the employee’s Federal filing status (Form W-4). So, if Employee A’s W-4 lists ‘Married’ and the spouse’s W-4 also lists ‘Married’ both individuals will receive an $800 credit ($1,600 in total). Though the individuals are not required, they have the option of adjusting their W-4 to single so that each receives only the $400 credit ($800 in total). Please click the link for Publication 15-T and scroll to page 73 for more details.  http://www.irs.gov/newsroom/article/0,,id=204447,00.html

What can I tell my employees if they have questions about the Making Work Pay credit and what it means to them?

The IRS has made modifications to the tax withholding tables for single and married individuals and Paycor has applied those tables to our payroll calculations. Please click the link for Publication 15-T and scroll to page 73 for more details.  http://www.irs.gov/newsroom/article/0,,id=204447,00.html

We’re a small company. Do these COBRA provisions apply to us?

COBRA generally does not apply to plans sponsored by employers with less than 20 employees. Many states have similar requirements for small plans providing benefits through an insurance company. The premium reduction is available for plans covered by these state laws.  

We’re a not-for-profit organization. Do the COBRA provisions apply to us?

Employers with 20 or more employees and offer Group Medical Plans must comply regardless of the type of organization.

Do the COBRA provisions apply to employees who resigned voluntarily?

No, only employees who were involuntarily terminated and meet the COBRA requirements are eligible for the subsidy payments.

Do we need to re-offer COBRA to terminated employees who previously chose not to participate?  How do we do this?

Yes, employees who involuntarily terminated from 09/01/2008 to 12/31/2009 are eligible for the COBRA subsidy.  Paycor recommends that you consult your 3^rd party COBRA administrator or attorney for best practices when approaching terminated employees. Also, the IRS is working on a form letter for employers to use when re-offering COBRA. Once published, we’ll link to it on this site.

Can terminated employees who elected COBRA prior to this legislation (and were paying 100% of the monthly premium) force their former employer to reimburse them for 65% of the premiums they paid?

No, the provision for cost sharing only applies to periods of coverage on or after March 1, 2009. 

Does this legislation extend the amount of time that an employee can participate in a COBRA program?

No

Can employees who were on COBRA and later discontinued coverage reinitiate it now? 

The IRS has not yet issued any guidance on this topic.

How should I report my 65% COBRA premium amounts to Paycor?

You can provide your payroll specialist with a list of eligible employees and the amounts of the 65% COBRA premium you already paid for which you would like to apply for credit. These credits will be entered with your regularly scheduled payroll run. Click here to download a COBRA Credit Worksheet to help you organize your information to submit to your Paycor Payroll Specialist.

Paycor for Windows clients: We are currently enhancing Paycor for Windows so you will be able to enter your own COBRA premium credits in May.

What records should I keep to support the COBRA credit claim I'm providing Paycor to file on my behalf?

Paycor recommends that you maintain proper records as defined by the IRS, including receipts from your terminated employees with the date and amounts of their 35% share of the premium payment made. Paycor does not need copies of this documentation. To learn more about the IRS record keeping requirements please go to www.irs.gov and search "COBRA records".

When will I receive my credit or refund for these COBRA premium payments?

Paycor will apply your COBRA subsidy credit to your federal payroll tax (941) deposits. You will observe this credit on your Cash Requirement report and it will be applied to your bank account as follows:

• If your COBRA credit < your 941 liability your payroll impound will be reduced by the amount of the credit.
• If your COBRA credit > your 941 liability, your payroll impound will be reduced by the amount of your 941 liability.  The remaining credit will be refunded after the credit is offset by future liabilities.  (Future impounds will not be reduced.)
• COBRA credits not offset by the end of the quarter will be requested as an agency refund on your 941.

When does this provision of the legislation expire?

The provision is for employees who were terminated involuntarily between 09/01/2008 to 12/31/2009 and can last for 9 months after separation.

Should we expect to receive tax notices from the IRS as a result of COBRA credits affecting our 941 deposits?

The IRS has indicated that they do not expect additional tax notices as a result of this change; however, any time you receive a notice from any tax agency please forward to your Paycor Payroll Specialist as soon as it is received.

Why do we have to re-offer COBRA to employees who terminated prior to March 1, 2009 and chose not to participate in COBRA at that time?

This is a requirement of the ARRA. Since terminated employees are now responsible for only 35% of the COBRA premiums these terminated employees may now elect to participate.

Employee A terminated in October 2008, enrolled in COBRA effective November 1, 2008 and has paid COBRA premiums since that time. Are the benefit payments Employee A made prior to March 1, 2009 eligible for this credit?

No, payments made prior to March 1, 2009 do not qualify for the credit.

What other information is Paycor making available to its clients about these changes?

Paycor continues to work closely with the IRS and other industry associations to stay informed of the latest developments within the ARRA and other proposed legislation.  You have our assurance that our systems will be updated to ensure your compliance anytime new payroll and tax changes are introduced.  We also intend to keep you informed as changes are announced or become effective.  To help you stay current on this topic, Paycor will always have the latest updates available at www.paycor.com/ARRA.aspx.

If you have additional questions, please email ARRAquestions@paycor.com or contact your Payroll Specialist.