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Economic Stimulus Plan Provisions

Paychex has been monitoring several provisions of the American Recovery and Reinvestment Act of 2009 (ARRA), and potential economic legislation, so we can continue to advise our clients, manage their administrative details, and help them comply with changing government regulations.

The following provisions of the economic stimulus plan signed by President Obama on February 17 may have a significant impact on your business. Be sure to check back often for updates.

• "Making Work Pay" Provision

  Gives workers a rebate/credit for the 2009 and 2010 tax years of the lesser of $400 for individuals and $800 for couples, or 6.2% of earned income. These amounts taper off for individuals earning over $75,000 or couples earning over $150,000. The credit was achieved via a change to withholding tax tables* effective April 1, 2009. Paychex began processing client payrolls using these adjusted tables on March 5 — well in advance of the April 1 deadline.

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

  Taxpayers at risk include:

  • Married couples in which both spouses work.
  • Workers with more than one job.
  • Retirees who have federal income taxes withheld from their pension payments.
  • Social Security recipients with jobs that provide taxable income.

  For additional tax withholding guidance, see IRS Publication 919*

• Work Opportunity Tax Credit

  This provision helps two groups of workers find jobs by offering a Work Opportunity Tax Credit (WOTC) to employers who hire prospective employees who are considered either disconnected youth or unemployed veterans. The credit applies to individuals who begin work for the employer after December 31, 2008.

  These two groups of employees are in addition to nine other targeted groups eligible for the work opportunity credit, which can be obtained by filing IRS Forms 8850* and 5884.*

  More information about the WOTC can be found on the Department of Labor and IRS websites.

• COBRA Premium Subsidy

  Under the American Recovery and Reinvestment Act of 2009 (ARRA), certain individuals may be entitled to a reduction in their COBRA premiums for up to nine months for coverage periods beginning on or after February 17, 2009. In order to be eligible for the premium reductions, the individual must have lost coverage under an employer's group health plan due to an involuntary termination during the time period beginning September 1, 2008 and ending on December 31, 2009.

  These Assistance Eligible Individuals (AEI) are eligible for a 65 percent federal subsidy on their COBRA premiums for a maximum of 9 months. Under the new regulations, an AEI would be considered as having paid their COBRA monthly premium in full if payment of 35 percent is made to 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, and for employers to receive the credit, the IRS has redesigned the 1st quarter 2009 Form 941: Employer's Quarterly Federal Tax Return. Two lines were added; 12a for taxpayers to indicate the dollar amount of the premium assistance payments made on behalf of eligible individuals, and 12b to indicate the number of individuals provided with COBRA premium assistance.

  In order to take advantage of this premium subsidy, an AEI must notify their employer of their intention to do so. If an AEI taking advantage of the subsidy is considered to be a high-income individual ($125,000 single, $250,000 joint), they will be required to repay the subsidy on their tax return for the year in which the subsidy was provided.

  Individuals that have requested to take advantage of the premium reduction assistance under the ARRA but have been denied this treatment by their employer may request a review of the employer's denial by the U.S. Department of Labor or the Department of Health and Human Services. Both Departments have 15 business days to make a determination once they have received a completed application for review. The DOL has updated its website to include the application for such review as well as specific instructions on how an individual can request this review. Included in the instructions are the eligibility requirements for the premium assistance as well as a link to include documentation to also be reviewed.

  While the DOL has requested that this information be submitted online using the application available on the DOL website, individuals do have the option to print and submit a paper application for the review. The application and instructions can be found at http://www.dol.gov/ebsa/COBRA/main.html.

• Special COBRA Election Period

  A special 60-day election period must be given to individuals who would have been considered an AEI, but are not enrolled in COBRA on the date of enactment of the ARRA. A notice must be sent to these individuals notifying them of their right to elect COBRA coverage as well as the availability of the subsidy. If COBRA coverage is elected during this special election 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.

• COBRA Plan Enrollment Option

  Generally under COBRA, an individual can only continue coverage under the plan they were covered under on the day before the qualifying event. Under the ARRA, employers, if they so choose, can allow AEIs to be covered under a different plan offered by the employer. The requirements for this are that the employer allow an AEI to make this change (employers are not required to offer this option), 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 health care flexible spending account.

Recently Enacted Provisions

Paychex will help keep you informed of the latest economic provisions as they are passed by Congress.

• Required Distributions from Retirement Accounts

  Enacted by Congress in late December, 2008, this provision temporarily suspends the minimum required distribution from retirement plans for certain individuals aged 70½ for the 2009 plan year.

Keep Up with the Latest Legislation

Please bookmark this page and visit often for the latest updates on the economic stimulus plan, as well as other pending government legislation.

For information about Paychex products and services, please complete our product request form for a no-obligation quote.

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Any information provided by this website may no longer be viable subsequent to its issuance. Any information it provides is developed at the time of its issuance based upon facts and circumstances known at that time.

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