Written by Beth Ann Ebersole
The IRS recently issued additional guidance for employers about the American Rescue Plan Act’s (“ARPA”) provision on COBRA temporary premium assistance. The ARPA was enacted earlier this year and was discussed in our previous update, “Understanding COBRA Provisions In The American Rescue Plan Act.”
As a refresher, the ARPA provides for a temporary 100% reduction in the COBRA premium to qualifying employees and beneficiaries from April 1, 2021 until September 30, 2021. To be eligible for paid COBRA benefits, an individual must be a qualified beneficiary who is eligible for COBRA due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment. Given we are well into the eligibility period, assistance eligible individuals (“AEIs”) who lost their job after April 1st would still qualify for the subsidy through September 30, 2021. For those individuals who had reduced hours or lost their jobs before April 1st, their window to take advantage of the subsidized coverage ended on July 31st, so long as the individual received the required notice by May 31st.
In its recent guidance, the IRS confirmed that AEIs can still qualify for the COBRA premium assistance if: (1) the AEI’s original 18-month COBRA continuation coverage expired; and (2) the AEI is entitled to elect extended continuation coverage. There are a few reasons why an AEI might be eligible for extended continuation coverage, including because of a disability determination or a second qualifying event. In any of these circumstances, the IRS has clearly indicated that all AEIs who still have a right to enroll in COBRA and/or make COBRA payments between April 1, 2021 and September 30, 2021 are eligible for the subsidy, so long as they do not otherwise become eligible for group health coverage under a private plan or Medicare.
Disqualification of COBRA Continuation Coverage
The guidance also clarified that if an AEI becomes eligible for coverage under any other private group health plan or Medicare, then the individual will no longer be eligible for COBRA premium assistance, even if the group health plan or Medicare does not include all of the benefits provided by the previously elected COBRA coverage. For example, eligibility for Medicare, which generally does not provide vision or dental coverage, ends eligibility for premium assistance related to COBRA continuation coverage.
State Continuation Coverage
The guidance confirms that AEIs covered under a State continuation coverage program may qualify for COBRA premium assistance, even if the State program covers only a subset of State residents.
Clarification on Which Entity May Claim the COBRA Premium Assistance Credit
The notice explains that the entity entitled to the tax credit is the common law employer for AEIs whose hours have been reduced or for individuals who have been involuntarily terminated. In addition, the guidance discusses who may receive the credit in more complex arrangements, including which entity is entitled to the credit when the group health plan covers employees of different common law employers or when a business has reorganized.
Claiming the Tax Credit
In order to claim the tax credit, you should report the credit and number of individuals receiving assistance on your federal employment tax returns, usually via Form 941. You are permitted to withhold Federal employment tax payments up to the amount of the COBRA premium credit and you will not be subject to a penalty for failure to deposit. Keep in mind that tax deposits cannot be withheld for a period where COBRA coverage has yet to start. You can also request an advance payment from the IRS using Form 7200; however, this form should only be used if the anticipated COBRA premium subsidy is greater than the employer’s Federal employment tax liability. You may have to amend Form 941s which already have been filed. You should consult your accountant regarding this issue.
What Does This Mean For You?
If you are self-insured, you should provide AEIs with a Notice of Expiration of Premium Assistance to let them know that their subsidy will expire on September 30, 2021, either because their COBRA eligibility has reached its maximum time limit (generally, 18 months) or because the subsidy period is ending September 30, 2021. If you are not self-insured, you should check with your plan to ensure the expiration notices have been sent, as well as continue to verify that notices of eligibility are sent to all eligible individuals. You should also continue to notify your group health plan administrator within 30 days after an employee’s employment ends or their hours are reduced. Finally, you should work with your accountants to make sure you have properly claimed, and have received, the tax credit due to your organization. You can find the IRS guidance here.
If you have any questions about this or any other employment law issue, please contact Beth Ann Ebersole at firstname.lastname@example.org or (717) 509-7219, S. Whitney Rahman at email@example.com or (717) 509-7237 or Grace C. Nguyen Bond at firstname.lastname@example.org or (717) 509-7226.
**This update is provided for informational purposes only and should not be construed as legal advice or as creating an attorney-client relationship where one does not already exist. This article was published on September 7, 2021. Please check back or contact us for the most up-to-date information.**