Question:

An active employee was reduced to a part-time schedule and has elected COBRA coverage. Can we deduct COBRA premiums on a pre-tax basis now that they’re part time?

Answered by the HR Experts

It depends on your plan. You’re only permitted to deduct COBRA premiums on a pre-tax basis from an active employee’s payroll through a cafeteria plan, and only if the following parameters are met:

• The cafeteria plan document must specify that COBRA payments are permitted;

• The cafeteria plan participant must be receiving taxable compensation from which the pre-tax deduction can be taken;

• The election can only be made for the employee, their spouse, children under age 27 at the end of the taxable year, and tax dependents for health coverage purposes; and

• You still follow the § 125 rules limiting midyear election changes to only scenarios allowed by the IRS regulations and adopted by your plan.

If these parameters aren’t met, the plan document would need to be amended to meet them before deducting the COBRA premiums on a pre-tax basis.

Also, COBRA election generally occurs on a retroactive basis, and cafeteria plan elections can only occur on a prospective basis. This means that you may be able to deduct future CORBA payments, but not any that have already been made.

This Q&A does not constitute legal advice and does not address state or local law.