Employee Benefits Compliance

IRS FAQs on COBRA Subsidies Created by the American Rescue Plan

On May 18, 2021, the IRS issued Notice 2021-31 (entitled “Premium Assistance for COBRA Benefits”), which provides guidance on the Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidy created by the American Rescue Plan Act (ARPA).

As background, the ARPA subsidy covers 100% of COBRA and state mini-COBRA premiums from April 1 through September 30, 2021, for certain COBRA eligible individuals whose work hours were reduced (either voluntarily or involuntarily) or whose employment was involuntarily terminated. Employers pay the premium up front and are reimbursed via tax credit on quarterly taxes.

The much-anticipated guidance includes an overview and explanation of the subsidy, then provides responses to 86 frequently asked questions (FAQs) covering the following topics:

  • Eligibility
  • Involuntary terminations
  • Allowed types of coverage for assistance
  • Beginning and ending period for assistance
  • Extended election periods
  • Application of state mini-COBRA rules
  • Calculating and claiming the tax credit

The FAQs include several helpful examples. Highlights are below. The full IRS notice can be found at https://www.irs.gov/pub/irs-drop/n-21-31.pdf.

Self-Attestation May Be Required

Question 4. May the employer require individuals to self-certify or attest that they are eligible for COBRA continuation coverage with COBRA premium assistance due to a reduction in hours or involuntary termination of employment and, if so, may the self certification or attestation be used to assist the employer in substantiating its entitlement to the premium assistance credit?

Answer 4. Yes. Employers may require individuals to provide a self-certification or attestation regarding their eligibility status with respect to a reduction in hours or involuntary termination of employment, which may assist the employer in substantiating its entitlement to the credit. Employers are not required to obtain a self-certification or attestation; however, employers who claim the credit must retain in their records either a self-certification or attestation from the individual regarding the individual’s eligibility status, or other documentation to substantiate that the individual was eligible for the COBRA premium assistance (see Q&A-7; see also Q&A-84).

Question 5. May the employer require individuals to self-certify or attest as to their eligibility status regarding other disqualifying group health plan coverage or Medicare, and if so, may the self-certification or attestation be used to assist the employer in substantiating its entitlement to the premium assistance credit?

Answer 5. Yes. Employers may require individuals to provide a self-certification or attestation as to their eligibility status for other disqualifying group health plan coverage or Medicare, which may assist the employer in substantiating its entitlement to the premium assistance credit. Employers are not required to obtain a self-certification or attestation; however, employers who claim the credit must retain in their records either a self-certification or attestation from the individual regarding the individual’s eligibility status, or other documentation to substantiate that the individual was eligible for the COBRA premium assistance (see Q&A-7; see also Q&A-84).

Eligibility for Other Coverage Must Include Ability to Enroll 

See Page 8 Examples for Details

Question 9. If a potential Assistance Eligible Individual was eligible for other group health plan coverage before April 1, 2021, but on and after April 1, 2021, has not been permitted to enroll in that other group health plan coverage, is COBRA premium assistance available for the individual’s COBRA continuation coverage?

Answer 9. Yes. COBRA premium assistance is available to a potential Assistance Eligible Individual until the individual is permitted to enroll in coverage under any other group health plan (including during a waiting period for any other plan).

Calculating and Claiming the Tax Credit

Of particular interest to employers are FAQs 71 through 86 which clarify (with examples) the process for obtaining the tax credits. Employers should review these FAQs and consult with their tax professional before filing. Highlights of this section include the following:

  • An employer claims the credit by reporting the nonrefundable and refundable portions of the credit and the number of individuals receiving COBRA premium assistance on the designated lines of its federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return.
  • In anticipation of receiving the credit to which it is entitled, an employer may:
    • 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
    • request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction (using Form 7200, Advance Payment of Employer Credits Due to COVID-19).
  • An employer should include the tax credit in its gross income.
  • An employer may not claim a double benefit (double dip) for amounts that are considered as qualified wages under the CARES Act or the FFCRA. 

Determining Whether a Termination was Involuntary

Another challenging topic for employers has been determining whether an employee’s termination was involuntary or voluntary. Thus FAQs 24 through 34 are particularly welcome. Highlights of this section include the following definition:

“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.”

This section also clarifies that the determination of whether a termination is involuntary is based on the facts and circumstances and provides answers to several questions including terminations due to:

  • illness or disability
  • retirement
  • preemptive resignations
  • gross misconduct
  • geographic location changes
  • severance arrangements and “window” programs
  • workplace safety concerns due to a health condition
  • school/childcare issues due to pandemic
  • voluntary termination due to involuntary reduction of hours
  • death
  • failure to renew contract for staffing agency employee

Types of Qualified Group Health Plans

The subsidy is available for COBRA continuation of any group health plan except a health FSA. This includes vision and dental plans and Health Reimbursement Arrangements (HRAs)—including HRAs integrated with individual health coverage other than Medicare. Eligibility for coverage under an HRA will end subsidy eligibility in the same way as eligibility for coverage under any other group health plan, unless the HRA qualifies as a health FSA.

Note that qualified small employer HRAs (QSEHRAs) are not group health plans, and thus are not subject to COBRA or the subsidy.

Additional Information

For more information on ARPA and general rules about the COBRA subsidy, see our prior summary on the topic found here. If you are not subscribed to receive the Leavitt Group news alerts, you may subscribe here!

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