COBRA Series Part 3: COBRA Premium Assistance: Overview, Claiming Credits & Recordkeeping

 
 

 

The American Rescue Plan Act of 2021 (ARPA) provides a temporary 100% reduction in the premium that eligible individuals would have been required to pay for COBRA and comparable state law health insurance continuation coverage for qualifying periods beginning on April , 2021, through September 30, 2021.  

Entities who maintain group health plans, such as employers and multi-employer plans will receive a corresponding tax credit provided under the new law. The premium reduction and credit are also available for continuation coverage given for such circumstances under comparable State legislation, which is frequently referred to as "mini-COBRA."

The Internal Revenue Service (IRS) has issued updated guidance through IRS Notice 2021-31 for employers about this temporary 100% reduction in the premium. Below is a summary of this guidance, along with additional helpful information and guidance for claiming credits and recordkeeping.

 

Summary

IRS Notice 2021-31 includes helpful information for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to eligible individuals. 

The following information is clarified in the Notice:

  1. Calculating the credit.

  2. Individual eligibility.

  3. The premium assistance period.

  4. Additional vital information to help employers, plan administrators, and insurers fully understand the credit.

The Notice also includes a Questions and Answers section which addresses many of the issues that have emerged in relation to COBRA premium assistance offered under ARPA for COBRA continuation coverage. The questions and answers are generally applicable to COBRA continuation coverage requirements under ARPA, including both Federal COBRA and similar State mini-COBRA requirements.

To read the information provided in this 41-page Notice, click here.

 

Additional information

The person to whom premiums would have been payable, also referred to as the “premium payee,” is entitled to a refundable and advanceable credit equal to the premiums that would have been charged to eligible individuals in the absence of premium assistance plus certain administrative costs.

COBRA premium assistance credit amounts are first applied against the employer portion of Medicare tax, reduced by applicable emergency paid sick leave, extended family and medical leave, and employee retention credit amounts, and can subsequently be applied against other employment taxes.

For additional information on the ARPA’s COBRA Premium Assistance Provisions, click here.

Please find claiming credits and recordkeeping guidance below.

 

Who is eligible for this COBRA premium assistance?

An Assistance Eligible Individual (AEI) is a Qualified Beneficiary who is eligible for and elected continuation coverage by reason of an Involuntary Termination or Reduction in Hours qualifying event.  

The IRS defines involuntary termination in Q&A-24 through 34 of Notice 2021-31. 

As noted by the IRS, “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.” 

To read the additional guidance on involuntary termination provided in the Notice, click here.

 

Who qualifies as a premium payee?

Generally, entities who maintain group health plans, such as employers and multi-employer plans, fall under the category of a premium payee.

 

How do premium payees claim the premium assistance credit?

COBRA premium assistance credit amounts and the number of individuals receiving COBRA premium assistance are reported on Form 941, Employer’s Quarterly Tax Return.

 

Am I required to keep a record of an individual’s attestation?

Employers claiming the COBRA premium assistance credit are required to retain in their records a self-certification or attestation from the individual receiving premium assistance regarding the individual’s eligibility status or other documentation that substantiates that the individual receiving premium assistance was eligible.

 

This blog article is the third of a series.

In case you missed it, click the following links to read part one and part two of this blog series:

  1. COBRA Series Part 1: A Quick Overview of Required Notices

  2. COBRA Series Part 2: The Top COBRA Compliance Mistakes Employers Make

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Disclaimer: Please note that this is not all-inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding the specific application of the information to your own plan.

Editor’s Note: This post was originally published to PrimePay’s blog and has been updated for freshness, accuracy, and comprehensiveness.
 

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John Cuellar

John Cuellar

John is responsible for SyncHR’s product, engineering, and system operations teams. He is focused on streamlining the business processes related to HCM and finance by distributing SyncHR to all members of the workforce and by using patented security and workflow to control these developments. John is also responsible for delivering SyncHR as a cloud based application with “extreme ratio” financial metrics.

He has a background in engineering, workplace applications, and business administration, bringing over 25 years of experience deploying strategic HCM applications. Prior to co-founding SyncHR, John was the CEO of Harbor Technologies, since acquired by Mellon Financial Corporation. Previous to Harbor Technology Group, he spent an internship with the Swiss Bank Corporation in their derivatives pricing and trading group and also worked as a senior manager for the US Navy. John received his Bachelor of Science degree in Electrical Engineering from the University of California at Santa Barbara, and his Master of Business Administration from the Haas School of Business at the University of California at Berkeley.

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