The following summary is based on our review of the relevant provisions of the HIRE Act and the IRS’s preliminary guidance:

1.            Employers -

               Taxable and tax-exempt employers are eligible for these tax benefits if they hire “qualified employees ” and meet the other requirements of the HIRE Act.  Public employers, with the exception of public colleges and universities, are not eligible for these tax benefits.

2.         ”Qualified Employees”  -

               a.)        In order to qualify for the tax benefits under the Hire Act, an employer must hire an employee (after February 3, 2010 and before January 1, 2011) who has been unemployed or employed for less then 40 hours during the 60 day period ending on the date that the new employment begins. 

            b.)        Family members and certain employees related to the employer do not qualify. 

            c.)        A qualified employee must sign a sworn affidavit stating that they meet the qualification with respect to the 60 day period.   The IRS has prepared an affidavit form [form W-11] to be used for this purpose.  This form is to be retained by the employer and not filed with the IRS.

            d.)        The payroll tax exemption benefit does not apply to an employee hired to replace an existing worker, unless the existing worker terminated employment voluntarily or was terminated for cause.  [Note: special rules may apply to employees hired to replace laid off employees].

3.         Payroll Tax Exemption –

            a.)        An employer who hires a “qualified employee” during the relevant time period will be entitled to a Payroll Tax Exemption (“PTE”) on all wages paid to that “qualified employee.”  The PTE is an exemption from the employer’s 6.2% share of social security taxes on all wages paid to the “qualified employee(s)” from March 19, 2010 through December 31, 2010,

            b.)        The PTE does not apply to Medicare tax or any other tax withholdings.  It also will not impact on the amount of social security benefit that the “qualified employee” may eventually be entitled to receive.

            c.)        The IRS is developing forms and guidance with respect to how to handle the PTE for the first calendar quarter of 2010, which will allow appropriate credit to be taken when the employer pays taxes due for the second calendar quarter of 2010.

4.         Business Retention Tax Credit Benefit –

            a.)        There is also a general business tax credit for qualified employers to retain new hires.  An employer may claim this credit for each “qualified employee” it hires for purposes of the PTE and who remains an employee for 52 consecutive weeks (a “retained worker”).  The “retained worker’s” pay may not significantly decrease during the second half of the 52 week period.

            b.)        The Business Retention Tax Credit (“BRTC”) is the lesser of $1,000 or 6.2% of the wages paid to the retained worker during the 52 week period.

            c.)        Caveat:  Employers who are eligible for the more generous Work Opportunity Tax Credit (“WOTC”) must opt out of HIRE if they want to continue receiving the WOTC credit.

 Note:  The preceding summary highlights the key portions of this new law.  However, specific situations and questions should be referred to legal counsel and tax advisors, rather then relying on this general summary.  Additionally, the IRS will be issuing further guidance and forms which need to be taken into account with respect to the application of the provisions of this new law.

IRS Tax Advice Compliance Disclosure: To ensure compliance with the regulations governing the issuance of advice on Federal tax issues, we advise you that any tax advice in this communication (and any attachments) is not written with the intent that it be used, and cannot be used, to avoid penalties that may be imposed under the Internal Revenue Code

            The following are some of the key points of this new legislation, which becomes effective December 31, 2009:

            1.)  The subsidy (65% of the COBRA premium which is paid by the federal government through payroll tax credits) will be offered to employees who are involuntarily terminated and become eligible for COBRA before February 28, 2010.

            2.)  The length of time that an individual can receive the COBRA subsidy has been increased from the prior limit of nine (9) months to a new limit of fifteen (15) months.

            3.)  The extension to fifteen (15) months is retroactive to all individuals currently receiving the subsidy and will apply to any individuals whose initial nine (9) month subsidy expired.  

            4.)  The extension is also retroactive to those individuals who lost COBRA coverage because they stopped paying premiums after their nine (9) month subsidy expired.  Those individuals may be able  to re-enroll in COBRA and receive the additional subsidy without any gaps in coverage.  Plan Administrators will need to identify such individuals and send them a notice of their right to this option.

            The U.S. Department of Labor continues to issue: updated Fact Sheet, FAQs, Job Lost Poster and Poster for Employees and new Model Notices.  It is important for employers and plan administrators to carefully review and monitor the situation for any individuals who are or were eligible for the COBRA subsidy or who become eligible for it before February 28, 2010 and to ensure that timely notices of their rights are being sent.  On January 22, 2010, the USDOL held a compliance webcast re the extension of the COBRA subsidy, which you can view by clicking on this archive.

The U.S. Department of Labor and the Internal Revenue Service have continued to update information concerning this subsidy and employers should check these websites with respect to complying with the mandates of this program.

April 18, 2009 was the deadline for mailing Notices to all employees who have been involuntarily separated since September 1, 2008, whether they elected to take COBRA coverage or not.  The DOL website contains model notices to be sent to former employees, as well as to employees who are involuntarily separated during the remainder of 2009.

There are model notices which must be sent to former covered employees (and their qualified beneficiaries) who were involuntarily terminated after September 1, 2008, whether or not they previously elected COBRA coverage.   Individuals who were not eligible for COBRA, but were eligible for continuation of health care coverage under state or local law are also entitled to this subsidy and must also be sent an appropriate notice.

A notice must also be given to all covered employees (and their qualified beneficiaries) who are involuntarily separated from February 17, 2009 through December 31, 2009.  For a detailed discussion of this subsidy see our posting of  March 5, 2009.  The DOL webpage also provides links to Frequently Asked Questions about this subsidy from the DOL and the IRS, as well as from the House Ways & Means Committee.

On March 24, 2009 at 11:30 (EDT), the DOL will be presenting a webcast about compliance with these new rules.  You may register online for this free webcast.

The U.S. Department of Labor (“DOL”) is required to provide guidance and a model notice to be used by no later than March 19, 2009.  In the interim, the DOL has issued some preliminary guidance, including a COBRA Premium Reduction Fact Sheet, Frequently Asked Questions About COBRA Continuation for Employers, and Frequently Asked Questions for Workers and Their Families.  The House Ways and Means Committee of the U.S. House of Representatives has also issued a list of Frequently Asked Questions about the provisions of this law.

The Internal Revenue Service (“IRS”) has issued an expanded list of Questions and Answers pertaining to the mechanism of funding the government subsidy for COBRA through a credit on the employer’s quarterly federal tax report.

Please click on any of these highlighted items and you will be directed to these documents on the government’s website on the COBRA subsidy issues.

All employers covered by COBRA need to promptly begin reviewing which former employees may be covered under this subsidy program, including which may need to be offered a “second chance” to elect COBRA at the subsidized rate.  Within the next two weeks, there should be additional guidance and a model notice form issued by the DOL.

These provisions apply to almost all unemployed workers who are involuntarily terminated between September 1, 2008 and December 31, 2009.  A “second chance” is provided to those individuals who were terminated during that time period but may have declined COBRA.  These workers are allowed 60 days after receiving a new notice of these enhanced rights to decide to take COBRA coverage at the subsidized rate.  It is very important that these workers receive a detailed “enhanced notice” about their rights under this new law as soon as possible.  The Secretary of Labor is directed to issue a model enhanced notice by March 19, 2009 and employers must send an enhanced notice by April 18, 2009.  All COBRA notices issued after February 17, 2009 must also include an explanation of the rights granted under this new law.

Employees who previously elected COBRA, if eligible for this subsidy, will be entitled to reimbursement or a credit for the 65% of COBRA premiums that they may pay for the period beginning February 17, 2009.  High income individuals are not eligible for this subsidy.

There are many additional details included in these provisions and the Secretary of Labor will also be issuing regulations to further define these rights and obligations and the procedures to follow.  Employers should consult with legal counsel or a knowledgable COBRA administrator as to how to proceed to implement these new requirements.

Pursuant to IRS requirements, you are hereby informed that this information is not intended to be tax advice that should be relied upon for purposes of avoiding taxes and/or penalties.