Friday, February 27, 2009

Another twist in the new COBRA rules

[Welcome Industry Radar readers!]

Here's another interesting twist in the new COBRA rules...the 65% subsidy starts phasing out if an individual's income is above $125,000 ($250,000 for couples) and is completely gone at the $145K ($290K) income point.

Admittedly this won't affect too many people, but let's think about how this works in practice. You get laid off. You take COBRA and pay the 35% that the plan administrator bills you. Your government pays the other 65% via the payroll tax subsidy to your ex-employer. You think that this is a great deal and add Obama to your holiday gift list.

Then you get another highly paid position and end up, at year end, with taxable income above the threshold. Guess how the subsidy gets paid back to the government...

You got it. On your tax return. Not only will you face a surprise tax bill, can you say "Underpayment penalties ??"
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