On May 18, 2021, the IRS issued Notice 2021-31 that provides guidance for employers, plan administrators, and health insurers regarding the tax credit available to them under the American Rescue Plan Act of 2021 (ARPA) for providing continuation health coverage to certain individuals under COBRA.
Under ARPA, a 100% COBRA premium subsidy and other COBRA benefits are available to qualifying assistance eligible individuals (AEIs) during the period beginning on April 1, 2021 and ending on September 30, 2021. Highlights of the IRS guidance are as follows:
- The only qualifying events for an individual to obtain COBRA premium assistance are a reduction in hours or an involuntary termination of employment.
- COBRA premium assistance is available to a potential AEI until the individual is permitted to enroll in coverage under any other group health plan (including during a waiting period for any other plan).
- Qualifying AEIs also include qualified beneficiaries — spouses and dependents of an AEI — if coverage was lost because the employee suffered a reduction in hours or an involuntary termination of employment.
- An individual may become an AEI more than once – e.g., due to successive losses of coverage under the individual’s or a spouse’s plan.
- Although it is not required, employers may obtain employee self-certification or attestation of AEI status or eligibility for other disqualifying group health plan coverage to substantiate the employer’s claim for subsidy credit. Employers must keep a record of individuals’ attestations.
- A reduction of hours or involuntary termination of employment that follows an earlier qualifying event, such as a divorce, does not make a qualified beneficiary from the first qualifying event an AEI.
Involuntary Termination of Employment
- An involuntary termination of employment means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.
- An employee-initiated termination of employment constitutes an involuntary termination of employment for purposes of COBRA premium assistance if the termination of employment constitutes a termination for good reason due to employer action that results in a material negative change in the employment relationship for the employee analogous to a constructive discharge.
- An involuntary termination of employment includes a resignation as the result of a material change in the geographic location of employment for the employee.
- An involuntary termination of employment includes participation by an employee in a window program under which employees with impending terminations of employment are offered a severance arrangement to terminate employment within a specified period.
- An involuntary termination of employment generally includes an employer’s decision not to renew an employee’s contract, including for an employee whose employer is a staffing agency.
- The determination of whether a termination is involuntary is based on the facts and circumstances.
Calculation of COBRA Premium Assistance Credit
- The credit amount is the total premium that an AEI would have been charged without premium assistance. It does not include employer subsidies.
Claiming the COBRA Premium Assistance Credit
- A premium payee claims the credit by reporting the credit (both the nonrefundable and refundable portions of the credit, as applicable) and the number of individuals receiving COBRA premium assistance on the designated lines of its federal employment tax return(s), usually Form 941.
- In anticipation of receiving the credit to which it is entitled, the premium payee may (1) reduce the deposits of federal employment taxes, including withheld taxes, that it would otherwise be required to deposit, up to the amount of the anticipated credit, and (2) request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction by filing Form 7200.
- If the premium payee entitled to claim the credit does not have any employment tax liability, the premium payee should claim the credit on the Form 941 for the quarter in which the premium payee becomes entitled to the credit.
- A third-party payer (such as a PEO, CPEO, or § 3504 agent) may be treated as a premium payee for purposes of claiming the premium assistance credit, but only under certain circumstances.
- A premium payee may include the government of any state or political subdivision thereof, any Indian tribal government, any agency or instrumentality of any of the foregoing, and any agency or instrumentality of the Government of the United States that is described in § 501(c)(1) and exempt from taxation under § 501(a).
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.