The most recent economic stimulus bill seems to have hit small business owners hard.  COBRA, the Act that lets terminated employees continue their health insurance coverage with their former companies, is now easier to afford for those employees let go between September 1, 2008 and December 31, 2009.  Due to the latest tax benefits for the unemployed, and should a “terminated employee” decide to begin paying for COBRA health insurance payments from their former companies, they are only required to pay 35% of those premiums!  But the company has to pick up the remaining 65% of the premium cost.  However, there are some things to remember for the company:

1.  Though the company is required to pick up the other 65% of the premiums the terminated employees are no longer covering, the company can take a credit for those premiums on their quarterly 941 payroll tax returns.

2,  Another cool spin is that you can pay in less of the 941 payroll taxes you are required to pay as a company, as long as it equals 65% of the COBRA payments you are paying on behalf of your terminated employees.  In this way, you will be getting reimbursement for the 65% of the premiums you have to outlay immediately, instead of having to wait on the IRS to refund you those premiums from a timely filed 941 payroll tax return.

So in your sadness to pay these premiums on behalf of your terminated employees, remember that you get immediate relief in the reduction of the payroll taxes you have to send the IRS every week, or every month (depending on your payroll tax deposit requirements).  Yeah, goody.

Let me know of any questions in the comments.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.