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Tax surprise for some who received the COBRA subsidy
As we wait to see if Congress extends the COBRA subsidy enacted earlier this year under the American Recovery and Reinvestment Act (ARRA), some of those who are currently receiving the subsidy may be in for a surprise when they filed their 2009 tax return.
Under the current provisions, employees who lose their jobs between Sept. 1, 2008, and Dec. 31, 2009 may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. However, high-income earners who receive the subsidy may see their tax liability increase. Subsidy recipients whose modified adjusted gross income (MAGI) is between $125,000 - $145,000 (for individuals) or $250,000 - $290,000 (for joint filers) will likely see their tax liability increase as a way to repay a portion of the subsidy they received. Those with a MAGI exceeding $145,000 (for individuals) or $290,000 (for joint filers) you will need to repay the entire amount of the subsidy received.
If you believe that your MAGI will exceed the phase-out limits noted above, you may be able to reduce your tax liability by reducing your adjusted gross income for the year. One way is to consider deferring income, such as severance payments, from 2009 to 2010.
For information about the COBRA subsidy visit the following IRS and Department of Labor web sites.
IRS: http://www.irs.gov/efile/article/0,,id=205871,00.html
Department of Labor: http://www.dol.gov/
Under the current provisions, employees who lose their jobs between Sept. 1, 2008, and Dec. 31, 2009 may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months. However, high-income earners who receive the subsidy may see their tax liability increase. Subsidy recipients whose modified adjusted gross income (MAGI) is between $125,000 - $145,000 (for individuals) or $250,000 - $290,000 (for joint filers) will likely see their tax liability increase as a way to repay a portion of the subsidy they received. Those with a MAGI exceeding $145,000 (for individuals) or $290,000 (for joint filers) you will need to repay the entire amount of the subsidy received.
If you believe that your MAGI will exceed the phase-out limits noted above, you may be able to reduce your tax liability by reducing your adjusted gross income for the year. One way is to consider deferring income, such as severance payments, from 2009 to 2010.
For information about the COBRA subsidy visit the following IRS and Department of Labor web sites.
IRS: http://www.irs.gov/efile/article/0,,id=205871,00.html
Department of Labor: http://www.dol.gov/
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About the contributors
Andrew Chan is the
founder of Integrative
Financial Advisors in Framingham. He provides comprehensive
financial planning advice and investment management services. He has
been an adviser for over 12 years and works with clients to integrate
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education funding, and tax planning.
Cheryl Costa is a
managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.
Jamie Downey has been an
accountant for more than 14 years. He's a partner at Downey & Co. in
Braintree. Prior to joining the firm, he served as a manager in the
audit department of accounting firm KPMG.
