The IRS has recently issued 11 additional FAQs in Notice 2021-46, which supplements prior guidance released in Notice 2021-31, addressing the application of the American Rescue Plan Act (ARPA) subsidy for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation health coverage. The new Notice principally addresses issues related to the COBRA subsidy premium payment payroll tax credit.
The ARPA subsidy covers 100% of COBRA premiums from April 1 to September 30, 2021, for certain assistance-eligible individuals (AEIs) whose work hours were reduced or whose employment was involuntarily terminated. Link here for general IRS information about the COBRA subsidy. The premium is reimbursed directly to the employer through a COBRA premium assistance credit, and the value of the credit is included in gross income to the employer (but an employer generally could also claim a deduction for this amount.) The amount of the COBRA premium assistance is not taxable to the COBRA qualified beneficiary in receipt of the benefit.
COBRA Subsidy – Basic Steps
1. Plans were required to notify AEIs about their right to COBRA premium assistance. This includes all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment from April 1, 2021 through September 30, 2021, and generally any AEI who had a qualifying event before April 1, 2021 and after November 1, 2019. See model notices on the DOL COBRA Premium Subsidy webpage.
2. Plans are required to notify certain AEIs about when their premium assistance ends, and whether they may be eligible for regular COBRA coverage under a group health plan or other health coverage options through Medicaid or the Health Insurance Marketplace. Notice must be sent 15-45 days before the expiration of the subsidy set to expire on September 30, 2021 (meaning generally between August 16 and September 15), or 15-45 days before the expiration of an AEI’s maximum coverage period that ends before September 30.
3. To claim the premium assistance credit, employers should work with their tax advisers to report the credit and number of individuals receiving assistance on their federal employment tax return, usually Form 941. Employers can reduce the deposits of federal employment taxes up to the amount of the anticipated credit, and request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction by filing Form 7200. See the Form 7200 instructions and IRS Notice 2021-31 for more info.