Reduced premiums
Individuals who are involuntarily separated from employment between September 1, 2008 and February 28, 2010 may be able to make reduced premium payments for COBRA continuation coverage. Instead of paying the full monthly premium, assistance eligible individuals pay 35 percent of the premium and their former employers pay the remaining 65 percent of the premium. The former employer is reimbursed by a payroll tax credit.

Extension
Originally, Congress set a December 31, 2009 deadline for eligibility for COBRA premium assistance. The 2010 Defense Act extended the deadline for eligibility to February 28, 2010. The 2010 Defense Act also extended the maximum period for receiving the subsidy an additional six months (from nine to 15 months).

In some cases, an individual may have exhausted his or her nine months of COBRA premium assistance before Congress approved the extension. The 2010 Defense Act provides an extended period for the retroactive payment of the individual’s 35 percent payment. To continue coverage, the assistance eligible individual must pay the 35 percent of premium costs by February 17, 2010 or, if later, 30 days after notice of the extension is provided by their plan administrator.

In other cases, an individual may have exhausted his or her nine months of COBRA premium assistance and paid 100 percent of the COBRA premium for December. Individuals who paid the full COBRA premium in December are entitled to a refund under the 2010 Defense Act.

Automatic
Individuals who qualify for COBRA premium assistance are automatically eligible to pay reduced premiums for up to six more months for a total of 15 months. The individual must continue to be eligible for the subsidy. If he or she becomes eligible for other group health coverage (such as a spouse’s plan) or Medicare the individual is no longer eligible for COBRA premium assistance.

Income limits
Higher-income individuals may qualify for COBRA premium assistance but find they have to repay it. If an individual’s modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for married couples filing a joint return), the amount of the subsidy during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for married couples filing a joint return), the amount of the premium reduction that must be repaid is reduced proportionately.
Higher-income individuals may permanently waive the right to COBRA premium assistance. However, they may not later obtain the subsidy if their adjusted gross incomes end up below the limits. We can help you decide which option is best.

Possible extension
Many lawmakers in Congress support extending eligibility for COBRA premium assistance beyond February 28, 2010. In fact, the House of Representatives approved a bill in December extending eligibility through June 30, 2010. However, the Senate has yet to vote on the bill.

Health care reform
On January 19, voters in Massachusetts elected a Republican to fill the Senate seat held by the late Democratic senator Ted Kennedy. The new composition of the Senate is 59 Democrats and 41 Republicans. The election deprived Democrats of their 60-vote filibuster proof majority in the Senate.
Democrats were counting on 100 percent party unity in the Senate to pass a final health care bill. Even if every Democrat votes in favor of health care reform, the bill will be vulnerable to a GOP filibuster. The election has forced Democrats to rewrite their playbook for health care and other pending legislation. Democrats may try to persuade one Republican senator to vote in favor of health care reform but they are unlikely to win any GOP support. Equally unlikely is that the House will approve the Senate health care bill, thereby negating the need for another Senate vote. Many House Democrats believe the Senate bill falls short of comprehensive health care reform.
More likely, Democrats will attempt to move a smaller health care reform bill. It is unclear if a smaller bill will require individual and/or employer coverage and impose additional taxes for individuals/employers that fail to comply with the mandate. Democratic leaders have not given a timetable for moving a smaller bill.

Estate tax
As of January 1, 2010, the federal estate tax is abolished. In its place is a modified carryover basis regime. Under this rule, the income tax basis of property acquired from a decedent’s estate holding significant appreciated property generally must be carried over from the decedent under this repeal. Executors may partially increase the basis of property by up to $1.3 million ($3 million in the case of property passing to a surviving spouse). The House had approved a one-year extension of the federal estate tax in December but the Senate failed to vote on the bill before January 1, 2010. Many members of the Senate support a one-year extension but lawmakers are divided over whether to make the extension retroactive to January 1, 2010.

Jobs bill
The House approved a jobs bill in December but the bill has languished in the Senate. The continuing economic downturn and high unemployment has motivated many lawmakers to pass a more robust jobs bill. Support is strong in the Senate for extending some business tax incentives that expired at the end of 2009, such as bonus depreciation and enhanced small business expensing. The White House is also in favor of a new tax credit to reward employers that hire new workers. Details are sketchy but it could be modeled on the Work Opportunity Tax Credit.

Haiti relief
Shortly after the devastating earthquake in Haiti, Congress approved a special tax incentive to encourage Americans to help the island nation recover. Taxpayers can treat monetary contributions to Haiti earthquake relief made after January 11, 2010 and before March 1, 2010 as if they had been made on December 31, 2009. In other words, taxpayers can deduct these contributions on their 2009 returns. However, contributions cannot be deducted in both years.

We will keep you posted of developments in Congress. Please contact us if you have any questions about federal tax legislation.

One of my earliest posts on this blog was called “Here’s a Law We Don’t Need,” and it mocked a bill to ban novelty lighters. A follow-up was called “Senate Joins Anti-Novelty Lighter Crusade.”

Now I see how they are spending their time.  Here is a poll where you can express your views.

- Tom Beisner