In previous entries on this topic, I have noted that we should be continuing to receive guidance from the Department of Labor and the IRS on how to administer the subsidies.  Once employers got past the notice period, the task of administration becomes the main focus and the IRS has given some additional explanation of the administrative process by adding 19 new questions and answers to their website on subsidy compliance.

Some highlights:

(1)  As long as an employer's determination that an employee's termination was involuntary is consistent with a "reasonable" interpretation of the statutory provisions defining "involuntary termination," the IRS will not challenge the employers determination when considering whether an employer is entitled to a payroll tax credit for a terminated employee.  I believe this creates a "reasonableness" standard of review in future audits that will allow protections for "good faith" efforts to comply.  So a mistake will not result in a penalty if it was based on a reasonable interpretation of the rules.

(2)  An employer must retain appropriate documentation of its determinations that includes a statement by the former employee or employer that the employee was involuntarily terminated. Forms requesting treatment as an assistance-eligible individual may be used for this purpose.  I have also been considering, at least initially, keeping copies of  of any termination letters or resignation letters with the subsidy request forms as verification of the termination process.

(3) In a nod to employer concerns regarding treatment of control groups, In situations where one employer maintains a plan on behalf of related employers in the same controlled group, each of the employers will be viewed as a separate employer for payroll tax purposes.  In these cases, the payroll tax credit must be appropriately allocated among them, presumably based on the EIN numbers of each employing entity.  It also appears that, in certain circumstances, one state agency that maintains a plan can claim the credit for other state and local government agencies that participate in the plan.

(4) And finally, some additional good news.  No information reporting of the COBRA premium subsidy is required to be provided to an assistance-eligible individual or to the IRS by an employer, multiemployer plan or insurer.  However, any person claiming a payroll tax credit for the COBRA premium on Form 941, Employer's Quarterly Tax Return (or other applicable form) must keep records of the individual payments and other documentation to support the credit claimed.

For more answers provided by the IRS to multiple questions, please click here.