In April, the DOL issued FAQs discussing the American Rescue Plan Act (ARPA) COBRA subsidy. The FAQs left many with questions that were not addressed in the DOL’s guidance.
On May 18, 2021, the IRS issued its guidance in Notice 2021-31 and a series of 86 FAQs that solve many of the points left unanswered in the DOL guidance issued earlier this year. In addition, the IRS notice also touches on how the tax credit is calculated.
Areas of Clarification:
- Involuntary termination in connection with ARPA will be the same definition as used in 2009’s American Recovery and Reinvestment Act (the last federal COBRA subsidy) “a severance from employment due to the independent exercise of the 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.” They go on to say, “The determination of whether a termination is involuntary is based on the facts and circumstances. For example, if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that the employee was willing and able to continue performing services, so that, absent the voluntary termination, the employer would have terminated the employee’s services, and that the employee had knowledge that the employee would be terminated, the termination is involuntary;”
- The IRS clarified that the ability to enroll under a spouse’s group health plan will disqualify an individual from receiving the COBRA subsidy;
- Disability determination (a second qualifying event) that falls during April 1, 2021 and September 30, 2021 are eligible for the COBRA subsidy as long as the original COBRA event was due to an involuntary termination or a reduction in hours;
- Any reduction in hours that results in a loss of coverage can make someone an assistance eligible individual, regardless of whether the reduction in hours is voluntary or involuntary.
- Employers can claim the premium assistance credit for each calendar quarter as the amount equal to the premiums not being paid by the assistance eligible individuals for COBRA due to ARPA. This is the premium amount charged for COBRA continuation coverage and may include any administrative costs up to 102%. Any amount subsidized by the employer is not included in the premium assistance credit;
- In the case of a group health plan subject to federal COBRA or is self-funded, the plan sponsor maintaining the plan is entitled to the subsidy credit.
Diversified is unable to give tax advice regarding the actual filing for the credit but we can and will assist clients with the reportable amounts based on the members electing the subsidy. Please review IRS Notice 2021-31 Qs 71 through Q 86 for a discussion on how to claim the tax credit. We recommend that clients reach out to their accountants and/or payroll vendor for assistance with obtaining the credit.