Q.- An employee had a baby and returned to work on a part-time basis. She lost her eligibility for health coverage and will have a COBRA election. Can she pay her COBRA premiums pre-tax through payroll deductions?
A.- The answer depends on the terms of the employer’s cafeteria (Code section 125) plan. The IRS allows COBRA premiums to be paid through an employer’s cafeteria plan, but the plan has to be drafted (1) to allow part-time employees to participate in the cafeteria plan and (2) to allow the payment of COBRA premiums as an eligible benefit. The cafeteria plan would also have to recognize paying for COBRA as a mid-year change event.
If the employer’s cafeteria plan allows the payment of COBRA premiums, the employer could pay COBRA premiums pre-tax through payroll deductions.