On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act of 2009 (ARRA). Among many other provisions designed to encourage economic recovery, Title III of ARRA expands the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) Continuation Coverage to provide a federal subsidy toward an eligible worker’s COBRA premium.

• The provisions in ARRA providing this subsidy are effective as of the date of the President’s signing.
• Eligible workers may receive a 65% subsidy toward their COBRA continuation premium for up to 9 months. Previously any individual enrolling in COBRA was responsible for 100% of the cost of the coverage, plus a 2% administrative fee.
• The Treasury Dept. will administer the subsidy, providing employers or health plans, if they administer COBRA benefits, with a credit against payroll taxes for the cost of the subsidy.
• The subsidy terminates the date the individual becomes eligible for any new employer-sponsored health plan or Medicare coverage.
• Individuals involuntarily terminated from employment between September 1, 2008 and December 1, 2009 and who have annual incomes less than $125k (single) or $250k (joint filers) for the taxable year in which the subsidy is received are eligible for the COBRA assistance, along with their families.
• Qualified individuals who initially decline COBRA coverage prior to ARRA will be given an additional 60 days after they receive notice of the special election period to elect to receive the subsidy.
• The special election opportunity is also available to a qualified beneficiary who elected COBRA coverage but who is no longer enrolled on the date of enactment of ARRA, for example, because the beneficiary was unable to continue paying the premium.
• COBRA notices must include information on the availability of the premium assistance and must be provided to all individuals who terminated employment during the applicable time period, not just individuals who were involuntarily terminated.

The Department of Labor has 30 days after the enactment of ARRA to issue model notices for use by employers.

A number of programs were included in the Act, which focus on providing tax relief to both individuals and businesses. Some of the more notable provisions are:

“Making Work Pay” Tax Credit
The Making Work Pay credit, which is available in 2009 and 2010, is worth up to $400 for an individual and $800 for spouses filing jointly. This credit begins to phase out for taxpayers with adjusted gross incomes in excess of $75,000 for individuals and $150,000 for married couples filing jointly. This credit can either be claimed on tax returns or by reducing the amount of taxes that are withheld from paychecks.

“American Opportunity” Education Credit
This credit renames and expands the HOPE education credit. It allows a taxpayer to receive a credit of 100% for the first $2,000 in qualifying tuition and related expenses, and 25% for the second $2,000 of such expenses, for a maximum of $2,500. This credit is subject to a phase-out for individual taxpayers with an adjusted gross income in excess of $80,000 or $160,000 for married couples filing jointly.

Alternative Minimum Tax Patch
The Alternative Minimum Tax exemption is increased to $46,700 for individuals and $70,950 for married couples filing jointly, and allows personal credits against the Alternative Minimum Tax. This patch protects an estimated 26 million taxpayers from becoming subject to the AMT.

Above the Line Deduction for Automobiles
This is a new tax deduction for state and local sales tax paid on the purchase of new cars, from the effective date of the Act, February 17, 2009, through December 31, 2009. This deduction begins to phase out for taxpayers earning $125,000 per year for individuals and $250,000 for joint returns.

Extension of Bonus Depreciation
The bonus depreciation rules, which were set to expire after 2008, are extended for one year. The extended rule allows a 50% bonus depreciation for certain property placed in service by businesses in 2009, allowing businesses to deduct from their taxes 50% of the value of that property in addition to amounts that may otherwise be claimed under depreciation rules, after the item’s value is adjusted to account for the bonus depreciation.

Small Business Capital Gains
The law allows for a 75% exclusion for individuals on the gain from the sale of qualified stock held for more than five years. This applies to stock issued between February 17, 2009 and January 1, 2011. This exclusion is limited to individual investments and not the investments of a corporation.

Five-Year Carryback of Net Operating Losses
Businesses are allowed to “carryback” certain operating losses for up to five years, as opposed to the two year limitation previously allowed. Once a business opts to use the extended period, it becomes irrevocable.

Advanced Energy Investment Credit
A 30% investment tax credit is established for manufacturing advanced energy property, such as facilities that manufacture components for the production of renewable energy, energy conservation and other green technologies.

Non-Business & Residential Energy Property Credit
The tax credit for non-business energy property is increased to 30%. This credit may be claimed against expenses for certain energy-efficient improvements to existing homes, such as new furnaces, energy-efficient windows and doors, or insulation. To qualify, such expenses must occur in 2009.

New Markets Tax Credit
The dollars available for the New Markets Tax Credit increase to $5 billion for 2008 and 2009.