IRS issues guidelines for temporary COBRA premium subsidy program
The IRS has released information on how employers and workers can use a new temporary emergency program that could help health plans keep coverage in place for more than 2.2 million workers and people dependent on departure.
IRS explains how it views the new COBRA Premium Assistance tax credit program in Notice 2021-31.
Related: Navigating the New COBRA Grant: Obligations for Employers
The IRS lists Jason Sandoval as the lead author of the notice and Mikhail Zhidkov as a source of advice on how to claim the tax credit.
A COBRA primer
A continuation of health coverage provision in the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) allows many departing workers and their dependents to keep their group health coverage in place – if they are willing to pay 102 % of total premium cost.
The total cost of bonuses is often three to four times greater than an employee’s share of bonuses.
Because the cost of regular COBRA coverage is so high, eligible registrants participation rates were generally less than 10%, according to consultants from Mathematica Policy Research.
From September 1, 2008 to May 31, 2010, Congress attempted to help workers displaced by the Great Recession of 2007-2009 by creating a temporary COBRA grant. The grant paid 85% of eligible enrollees’ maintenance coverage premiums, and it can increase average COBRA maintenance coverage uptake rates to over 30%.
The COBRA premium assistance program
The new temporary COBRA premium subsidy was created by section 9501 of the American Rescue Plan Act of 2021.
The IRS refers to the act using the acronym “ARP.”
Section 9501 of the ARP is part of efforts to help people keep health coverage in place during the COVID-19 pandemic. The section calls on the federal government to pay the full premiums for maintaining COBRA coverage, from April 1, 2021 to September 30, 2021, for workers who lose access to coverage due to reduced hours or involuntary dismissal.
The IRS will grant the subsidy tax credit to the plan, not directly to former registrants.
In most cases, an employer can claim the tax credit when filing Form 941, the employer’s quarterly federal income tax return.
An employer can obtain the tax credit by reducing payments from other federal employment taxes or by requesting a cash advance.
Questions and answers
IRS officials provide answers to 86 questions about the new tax credit in the notice.
Here is an overview of some of the topics covered.
A health care plan can use the tax credit to pay for ongoing COBRA coverage for a worker who became COBRA eligible before April 1 and was still COBRA eligible on April 1, but the plan can use the tax credit money to pay for the coverage provided. during periods beginning on or after April 1.
Questions 1 and 24
The IRS may treat a worker forced to resign as an involuntary termination for the purposes of the COBRA tax credit, but a worker terminated for “serious misconduct,” such as theft, fraud, or property damage, is not eligible for the IRS. tax credit. .
In some cases, people become eligible for regular COBRA continuation coverage as a result of events other than job loss. If a woman has group health coverage, for example, her husband is covered and the husband divorces her, the husband could use the regular COBRA rules to pay 102% of full premiums and maintain health coverage. collective in place.
The new COBRA premium assistance tax credit only applies to people who lose coverage due to reduced hours or involuntary job loss, not to people who lose coverage for other reasons.
4. Gray areas
Officials note that interpretations of some rules may depend on the details.
A worker would not be eligible for COBRA aid due to a voluntary decision to retire, officials write.
“However,” officials continue, “if the facts and circumstances indicate that in the absence of retirement, the employer would have terminated the employee’s employment, that the employee was willing and able to continue to work and the employee knew that the employee would be terminated in the absence of retirement, retirement is an involuntary termination of employment. “