Subsidized Post-Termination COBRA Benefits

Nancy Campbell recently wrote a newsletter that discussed how health care reform impacts COBRA. One of the issues that Nancy addressed is subsidized COBRA and severance arrangements. The purpose of this blog is to dive deeper into the issues employers should consider when providing subsidized post-termination COBRA benefits.

• Providing Post-Termination Medical Benefits on an After-Tax Basis. Sections 105 and 106 of the Code exclude employer-provided health coverage and benefits from an employee’s gross income if certain requirements are met. One requirement that must be met for self-funded health insurance plans to qualify for this exclusion from gross income is compliance with the nondiscrimination rules of Section 105(h) of the Code. Read More ›

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Employers May Be Able to Exempt Severance Payments from FICA Tax under Quality Stores

The Supreme Court recently ruled in U.S. v. Quality Stores that severance paid to employees is considered wages for FICA purposes.  Before the Court’s decision, there was little doubt that employer-provided severance was wages for income tax purposes, but lower court cases were a mixed bag about whether severance was wages for FICA tax purposes.  Indeed, the Sixth Circuit in Quality Stores, held that the severance payments made by Quality Stores were not wages for FICA tax purposes because the payments fell within the statutory exclusion for Supplemental Unemployment Benefit (“SUB”) payments for FICA tax purposes.  The Supreme Court upheld the IRS’ position and disagreed with the Sixth Circuit’s analysis.  Read More ›

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