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Recovery 'stimulating' accountants, HR pros

The American Recovery and Reinvestment Act (ARRA) has a lot of people confused. The Mississippi Legislature has put its budget debate on hold while lawmakers try to figure out what ARRA funding will mean for the state. And, State Auditor Stacey Pickering is asking for a slice of the state’s recovery pie so that his office can police how state agencies apply their ARRA funds.

There is also plenty for the private sector to digest as the ARRA provides businesses with new tax incentives while also requiring more from employers.

Among the myriad of new benefits and requirements, perhaps the biggest two items are the “Making Work Pay” provision and a plethora of new regulations and provisions surrounding COBRA.

According to the American Institute of Certified Public Accountants, which cites the Paychhex Economic Stimulus website (www.paychex.com/stimulus), the “Making Work Pay” provision offers workers a rebate or credit for the 2009 and 2010 tax years. The benefit is the lesser of $400 for individuals and $800 for couples, or 6.2 percent of earned income. The amounts lessen for individuals making more than $75,000 per year or couples earning more than $150,000. The credit will be achieved through a change to the withholding tax tables that is now in effect.

Workers will not have to complete a new W-4 in order to claim the credit. However, individuals or couples in a higher tax bracket may submit a revised W-4 to ensure enough withholding to cover the income tax.

The changes to COBRA (the Consolidated Omnibus Budget Reconciliation Act) are substantial. One of the main changes is to the assistance eligible individual (AEI) designation.

Employees, their spouse and covered dependents would be considered an AEI if they experienced an involuntary termination between Sept. 1, 2008-Dec. 31, 2009. Under the new regulations, an AEI would be considered as having met their COBRA monthly premium in full if payment of 35 percent is made by the employer. The federal government will reimburse the employer for the remaining 65 percent of the premium by allowing them to take a credit against their quarterly employer tax filings.

In order to report and calculate subsidy amounts, the IRS has added two lines to the 2009 Form 941, employer’s quarterly federal tax return. The first line is for taxpayers to indicate the dollar amount of the premium assistance payments made on behalf of eligible individuals, and the second to indicate the number of individuals provided with COBRA premium assistance.

The ARRA also allows for a special COBRA election period. A special 60-day election period must be given to individuals who would have been considered AEI, but are not enrolled in COBRA on the date of enactment of the ARRA. A notice must be sent to these individuals informing them of their right to elect COBRA coverage as well as the availability of the subsidy by April 18. If COBRA coverage is elected during this special period, then coverage would be provided on a prospective basis and not be retroactive to the date of the original qualifying event. (The end date of COBRA coverage would remain 18 months from the original qualifying event.)

Finally, there is a new COBRA plan enrollment option. Under the ARRA, employers can, if they choose, allow AEIs to be covered under a different plan offered by the employer. The requirements are that the employer allow an AEI to make this change, the cost of the different coverage must not be more than the cost of the coverage the AEI was enrolled in at the time of the qualifying event, the different coverage must be available to active employees and the different coverage cannot provide only dental, vision, counseling or referral services or be a healthcare flexible spending account.

The ARRA also extended some of the 2008 business tax stimulus provisions, including 50 percent bonus depreciation, election to accelerate AMT or R&D credits and small business expensing rules.

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

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