COBRA Subsidies in the American Rescue Plan
May 20, 2021
On May 18, 2021, the Internal Revenue Service (IRS) issued Notice 2021-31 providing guidance on the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) Premium Assistance under the American Rescue Plan Act of 2021. This guidance includes FAQs regarding the credit calculation, eligibility, premium assistance period for employers, plan administrators and health insurers regarding the new credit for providing continuing health coverage to certain individuals under COBRA.
COBRA Premium Assistance becomes available as of the first period of coverage beginning on or after April 1, 2021 and will not be available for periods of coverage beginning after September 30, 2021. For each Assistance Eligible Individual (AEI), COBRA premium assistance does not extend beyond the period of COBRA continuation coverage if the period ends prior to September 30, 2021.
The premium assistance credit will be claimed by reporting the credit on the employer’s federal employment tax return such as the Form 941 Employer’s Quarterly Federal Tax return. The credit will begin when the premium payee receives the AEI’s election of COBRA coverage. Employers may also reduce the deposits of federal employment taxes, including withheld taxes, or request an advance on the credit that will exceed the deposits available by filing Form 7200.
Employers should review these requirements and check with their COBRA administrator to verify their compliance.
If you have questions related to claiming these credits, our state and local tax (SALT) professionals are available to assist. Please contact our SALT Team at SALT@GMCO.com
The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) published additional guidance on the COBRA Premium Assistance created under the American Rescue Plan Act of 2021 (ARPA). This page includes Employer FAQs and Worker FAQs on the new subsidy, a summary of the provisions, Model Notices, as well as additional resources.
Our updates on the provisions of the American Rescue Plan Act of 2021 (ARPA) continue with this examination of ARPA’s impact on health benefits for employees who lost healthcare coverage due to involuntary termination or reduction in hours. The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose health-plan benefits the right to continue health benefits provided by their group health plan for limited periods of time under certain circumstances.
Prior to the passage of ARPA, qualified individuals could be required to pay the entire premium for coverage, up to 102% of the cost to the employer’s plan. ARPA establishes a 6-month federal subsidy for COBRA premiums and expands options for “assistance eligible individuals” (AEIs). AEIs can receive a subsidy covering 100% of the COBRA premium from April 1, 2021 through September 30, 2021. It should be noted premium subsidies cease before September 30, 2021 for AEIs whose maximum COBRA coverage period ends earlier, based on their original COBRA qualifying event date. It also expires for those who become eligible for another group health plan or Medicare. Penalties apply to individuals who fail to inform their employer, insurer, or plan sponsor of other health plan coverage eligibility.
ARPA also creates an extended COBRA election period for AEIs who previously declined COBRA coverage or whose coverage was terminated because of premium nonpayment. As a result, AEIs may enroll to receive subsidized coverage for the length of the ARPA program period.
All group health plans subject to COBRA must provide this subsidized coverage. While not required, employers can also allow AEIs to enroll in other health plan options offered by the employer, even if it is a different plan than the one the AEI was enrolled in prior to the loss of coverage, if that option is less expensive, subject to certain conditions.
Under the ARPA subsidy program, employers pay the upfront COBRA premiums and receive a tax credit against their share of the Medicare tax, filed on their quarterly payroll tax return. The credit can be taken in advance and is refundable. However, employers will need to review their records to verify that this credit isn’t being used for other federal grants or programs, such as the Employee Retention Credit (ERC) or paid sick and family leave credits offered through the Families First Coronavirus Response Act (FFCRA). For AEIs who previously paid their COBRA premium during the ARPA coverage period, the law requires employers to issue a refund within 60 days.
Employers will need to prioritize these COBRA changes to meet tight deadline requirements. The employer must review all employees who have been eligible since November 1, 2019. Employers must provide AEIs with updated COBRA notices about the availability of the subsidy, the extended election period for COBRA coverage, and the expiration of the subsidy. The U.S. Department of Labor will provide model notices before the end of April.
Employers should review these requirements and check with their COBRA administrator to verify their compliance with all new required notices. Employers should also review any severance packages provided to employees containing a lump sum COBRA subsidy.
Our expert team of state and local tax professionals at Geffen Mesher is ready and prepared to help navigate this credit for your business and can be reached at SALT@gmco.com.