It takes the taxman to really kick someone when they're down

[Mtgman]

@Risha

That’s absolutely the case. Your employer has up to 30 days to inform the plan administrator of the qualifying event (the termination of your coverage, which may or may not be the same as your actual termination date), the administrator has up to 14 days to send you the paperwork, you have 60 days after that to elect coverage, and finally you have 45 days after the election to actually pay your first premium. So you could conceivably have up to 149 days after your coverage termination (depending on the speediness of the employer and administrator, of course) before you actually need to pay a penny in order to be covered. Of course, at that point you need to pay for the entire amount going all the way back to your coverage termination. However, often the most sensible thing to do is to wait until the very last minute to elect, and then hold off paying as long as you can. With any luck, you’re employed somewhere else by then, and you can just not pay and the administrator will cancel the coverage going all the way back.

Do you have a cite for this? I was reading my COBRA administrator’s letter today and it said “coverage will not be effective until payment is received” several times. I was thinking I’d have to moneygram the first payment to avoid a gap in coverage.

Enjoy,
Steven

[Eva_Luna]

@Mtgman

Do you have a cite for this? I was reading my COBRA administrator’s letter today and it said “coverage will not be effective until payment is received” several times. I was thinking I’d have to moneygram the first payment to avoid a gap in coverage.

Enjoy,
Steven

I went through this mess a couple of years ago. Basically, once you pay your COBRA premium, the coverage is retroactively reinstated back to the date it (previously) ended.

[Risha]

@Mtgman

Do you have a cite for this? I was reading my COBRA administrator’s letter today and it said “coverage will not be effective until payment is received” several times. I was thinking I’d have to moneygram the first payment to avoid a gap in coverage.

Not a problem! Eva Luna is correct as to how it works, as I can testify as someone who’s worked in COBRA administration for the past 10 years.

More definitively, I was paraphrasing my previous answer from the Department of Labor COBRA FAQ, which I double checked because I wanted to make sure I had all of the different time frames correct. I used the “What process must individuals follow to elect COBRA continuation coverage?” section. Under the “If I elect COBRA, how much do I pay?” section, they also specify:

Since it is likely that there will be a lapse of a month or more between the date of layoff and the time you make the COBRA election decision, you may have to pay health premiums retroactively-from the time of separation from the company. The first premium, for instance, will cover the entire time since your last day of employment with your former employer.

I actually have a quibble with the last sentence, since a lot of employers will continue your coverage until the end of the month (which is administratively easier, so it’s not necessarily out of the goodness of their hearts). In those cases, we’d normally count the last day of the month as your termination date for COBRA purposes, and start counting your 60 day election period from that point. We’d required a legal waiver from your employer to begin the clock from your actual termination date instead of your coverage loss date (which some have signed, I’m sure, as there’s often some variance in employers’ lawyers interpretation of the rules).

[BlinkingDuck]

@villa

I know it is cold comfort now, but you do get the “extra” tax back when you file, don’t you? In other words, it is a higher level of withholding rather than a higher actual rate on the severance package - I seem to remember that is how it worked on my bonus checks in the past.

True.

I imagine the IRS is doing this because if they don’t…the poor bastard that is layed off and can’t find a job may not be able to pay all his taxes when tax time comes…so they want to grab the money when they can.

Poor bastard

Want something to really chap your hide? Unemployment checks are taxed…and since you have been making income in the year it is likely taxed at or near the rate you used to be making.

Put that in your pipe and smoke it.