People who have lost jobs in the souring economy may find help in the American Recovery and Reinvestment Act of 2009.
Those who recently have joined the ranks of the almost 12 million unemployed may qualify for provisions such as COBRA health insurance subsidies, an extension of unemployment benefits and favorable tax treatment.
Job-seekers may benefit indirectly from tax incentives given to businesses to hire workers, says Bill Smith, director of the national tax office for CBIZ MHM in Bethesda, Md.
“The goal is to stop the layoffs and reverse the process,” Smith says.
Following is information about what’s in the law, who qualifies and how to take advantage.
COBRA health care subsidy
Terminated employees who are eligible for COBRA health insurance under their former employer’s plan no longer have to pay the full premium for the first nine months of coverage.
As part of the stimulus legislation, employers will pay 65 percent of the premium, for which they will receive a tax credit or government reimbursement. The terminated employee will be responsible for paying the remaining 35 percent of the premium.
Traditionally, terminated employees who wanted to continue with their employer’s group health insurance plan could do so with COBRA, but they had to pay 100 percent of the premium, plus a 2 percent administrative fee. This legislation aims to make the insurance more affordable by subsidizing the premium portion of the payment.
“Health insurance premiums can easily exceed $1,000 a month for one family,” says Michelle Oliver, owner of the Oliver Financial Group in Richmond, Va. “Unfortunately, a lot of people can’t afford that cost, especially when they’re unemployed, so they opt to decline health care coverage.”
The first reduced payments begin in March 2009.
How to take advantage: If you were recently laid off and opted out of COBRA, you now have the opportunity to reconsider and enroll. A new 60-day enrollment window began with enactment of the law on Feb. 17.
The stimulus package has a provision that subsidizes 65 percent of a laid-off worker’s COBRA health insurance premium.
- Plan applies to workers laid off between Sept. 1, 2008, and Dec. 31, 2009.
- Coverage lasts for nine months.
- Subsidy starts to phase out at annual income levels of $125,000 for individuals and $250,000 for couples.
The COBRA legislation extends to people laid off between Sept. 1, 2008, and Dec. 31, 2009. If you began participating in COBRA sometime after last Sept. 1, you may be granted a refund or a credit against future premiums.
Not everyone will be able to receive the benefit. If you’ve never participated in an employer health insurance plan, you won’t be eligible.
Companies with fewer than 20 employees don’t have to offer COBRA coverage under federal law. So, workers who’ve been laid off from small companies may not be eligible, either.
However, most states require that small businesses (typically between two and 19 employees) offer state continuation coverage to their eligible former employees, and this coverage may qualify for a subsidy.
The length of continuation under these “mini-COBRA” plans varies in each state, and their requirements don’t always mirror COBRA requirements. You can visit StateHealthFacts.org to find out if your state has a similar program.
People with high incomes won’t receive the benefit. The subsidy starts to phase out at annual income levels of $125,000 for individuals and $250,000 for couples. It disappears for individuals who make more than $145,000 a year, and couples whose annual income is higher than $290,000.
Your old company should contact you with information if you are eligible for the benefit.
“If you don’t hear from your former employer soon, and you think you qualify for the subsidy, call them and ask for details,” Oliver says.
COBRA coverage ends when you’re hired at a new job and enroll in that company’s health insurance program or are otherwise eligible for other insurance or Medicare.
Extended unemployment compensation
The stimulus legislation also provides for an increase in unemployment benefits. People who collect this compensation will get an extra $25 in their weekly checks.
“It may seem like a small amount, but the extra money can go a long way to help a person stay afloat financially,” Oliver says.
The stimulus package offers two boosts to unemployment coverage:
- Compensation increased by $25 each week.
- Benefits extension extended through the end of 2009.
There’s also a tax benefit. Many people don’t realize employment benefits are taxable, says Mark Luscombe, principal analyst for the tax and account group at CCH, a Wolters Kluwer business in Riverwoods, Ill.
“With this legislation, people who collect unemployment checks won’t have to pay taxes on the first $2,400 they earn,” he says. “This is for the year 2009 only.”
The stimulus package also extends the amount of time a person can collect unemployment to up to 33 extra weeks. This extension was passed last year and was supposed to be phased out in March. However, the recently signed bill now extends benefits through the end of 2009.
How to take advantage: The best way to get this benefit is to sign up for unemployment compensation. Contact your state unemployment insurance agency to determine if you qualify.
Creating new jobs
The stimulus bill has several provisions meant to indirectly help unemployed workers by offering incentives to small businesses to create jobs.
For example, there’s a provision that offers a tax incentive to companies that hire recently discharged veterans, as well as “disconnected youth” — defined as people between the ages of 16 and 25 who haven’t been attending school or aren’t regularly employed.
The goal for incentives like these is to start pumping money into small businesses, which employ about half of the private sector work force, Smith says
“The hope is that if you can keep small businesses healthy, employment will follow naturally,” Smith says.
How to take advantage: There’s not much you can do to take advantage of small business tax credits. Hopefully, the credits will do the work themselves by creating new jobs. Your best option is to continue to seek employment.