The IRS recently issued FAQs regarding the temporary, 100% COBRA subsidy created by the American Rescue Plan Act of 2021 (“Rescue Plan Act”). This subsidy is available to “Assistance Eligible Individuals” for COBRA continuation coverage during the period April 1, 2021 through September 30, 2021. We previously covered developments relating to the COBRA subsidy in our prior posts on April 13th and March 29th.
Under the Rescue Plan Act, employers must advance and then claim reimbursement for the COBRA subsidy through a premium credit against their Medicare taxes. This new IRS guidance, Notice 2021-31, offers guidance on a variety of topics, including who is eligible for the subsidy and the meaning of “involuntary termination” of employment. Below are a few notable takeaways from these FAQs:
- In addition to employees who lose group health coverage as a result of an involuntary termination or reduction in hours, “Assistance Eligible Individuals” also include a spouse or dependent child of an employee who loses coverage. Even if an Assistance Eligible Individual had previously elected self-only COBRA coverage before the Rescue Plan Act, a spouse or dependent child may still be eligible for an additional election opportunity.
- According to the FAQs, furloughs that result (or in 2020 resulted) in a loss of coverage are considered a reduction in hours if there is an expectation that the employee will return to employment, regardless of whether the furlough is employer-initiated or the employee elected the furlough through a process similar to a window election.
- An employer may require individuals to provide a self-certification of their eligibility status for the subsidy. This may include a self-certification that the employee is not disqualified from the subsidy due to eligibility for other group health coverage. If an employer requires a self-certification, the employer must retain it in their records for the purpose of claiming the tax credit. If the employer does not request a self-certification, it must have other records to substantiate the tax credit.
- For purposes of the subsidy, 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. The FAQs go on to note that whether any particular termination is voluntary or involuntary is based on the facts and circumstances. However the FAQs do clarify that an employee is considered an Assistance Eligible Individual and has had an involuntary termination of employment if they participated in a window program in which employees are offered a severance arrangement to terminate employment within a specified period of time.
- The subsidy applies to dental-only and vision-only plans.
- The FAQs also indicate that the premium assistance available for a tax credit does not include any COBRA subsidy that the employer already provides.
- The subsidy is available to governmental entities, including states and political subdivisions such as towns and cities.
- An employer may claim the tax credit using Form 941, “Employer’s Quarterly Federal Tax Return”. Employers may also reduce their deposits of federal employment taxes in anticipation of the credit. If the anticipated credit exceeds the tax deposit amount, the employer may request an advance of the amount by filing Form 7200, “Advance Payment of Employer Credits Due to COVID-19”.