The IRS released additional guidance under Notice 2021-46 regarding American Rescue Plan Act (ARPA) COBRA premium subsidies for assistance eligible individuals and related tax credits available to employers.
Here are the highlights from the guidance:
Eligibility for premium assistance during an extended period of coverage - an AEI (Assistance Eligible Individual under ARPA) whose initial triggering COBRA event was an involuntary termination of employment or reduction of hours, but who is eligible for extended COBRA coverage due to a disability determination, extension under state continuation or some other second qualifying event would be eligible for the subsidy as long as the extended coverage period falls within April 1, 2021 and September 31, 2021. This is the case even if the AEI didn’t notify the plan of their intent to elect COBRA before the start of the subsidy period.
End of subsidy period for dental and vision only - an AEI’s subsidy stops when they become eligible for coverage under another group health plan or Medicare, even if the coverage doesn’t include the same benefits as elected under COBRA. This means that if the AEI receives a subsidy for dental or vision only, but becomes eligible for Medicare or other group coverage, then the subsidy ends even though Medicare doesn’t cover dental or vision benefits.
State continuation - if a plan is subject to both state continuation and federal COBRA, the common-law employer is eligible to claim the tax credit (as opposed to the carrier), and even if state continuation requires the AEI to pay premiums directly to the insurer after federal COBRA ends, the employer (not the insurer) is entitled to claim the tax credit.
Claiming the COBRA subsidy tax credit - in most cases, the AEI’s current or former common-law employer is the entity eligible to claim the subsidy credit. If a plan covers employees of two or more controlled group members, each common-law employer is able to claim the credit for their current or former employees.
Multiple Employer Welfare Arrangement (MEWA) - if the MEWA neither pays wages subject to payroll taxes nor reports wages on an employment tax return on behalf of the participating employers in the MEWA, then the MEWA is not the “premium payee” and therefore not entitled to the COBRA tax credit. Instead, each employer is the premium payee and thus entitled to the tax credit.
Business reorganizations - if the seller maintains a group health plan and remains obligated to offer COBRA continuation to M&A qualified beneficiaries after a business transaction, the seller is the premium payee entitled to the COBRA payroll tax credit.
Form 941 filings for the third quarter ending September 30th will be due by October 31st. This includes COBRA subsidies paid by employers during the months of July, August and September. Employers that are premium payees should review this information and work with their CPA or tax advisor to ensure applicable tax credits are claimed for the third quarter, as well as for credits that may have applied during the second quarter.