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The IRS recently released Notice 2021-46
which gives additional information in the form of 11 Q/As about
ARPA COBRA premium subsidies for assistance eligible individuals
and related tax credit available to employers.
Here are the highlights from the guidance:
· Eligibility for premium assistance
during an extended period of coverage - an AEI (Assistance Eligible
Individual under ARPA) whose initial triggering COBRA event was an
involuntary termination of employment or reduction of hours, but
who is eligible for extended COBRA coverage due to a disability
determination, extension under state continuation or some other
second qualifying event would be eligible for the subsidy as long
as the extended coverage period falls within Apr 1, 2021 and
September 31, 2021. This is the case even if the AEI didn’t notify
the plan of their intent to elect COBRA before the start of the
subsidy period.
· End of subsidy period for dental
and vision-only - An AEI’s subsidy stops when they become eligible
for coverage under another group health plan or Medicare, even if
the coverage doesn’t include the same benefits as elected under
COBRA. This means that if the AEI receives a subsidy for dental or
vision only, but becomes eligible for Medicare or other group
coverage, then the subsidy ends even though Medicare doesn’t cover
dental or vision benefits.
· State Continuation - if a plan is subject to both
state continuation and federal COBRA, the common law employer is
eligible to claim the tax credit (as opposed to the carrier), and
even if state continuation requires the AEI to pay premiums
directly to the insurer after federal COBRA ends, the employer (not
the insurer) is entitled to claim the tax credit.
· Claiming the COBRA subsidy tax
credit - in
most cases, the AEI’s current or former common-law employer is the
entity eligible to claim the subsidy credit. If a plan covers
employees of two or more controlled group members, each common-law
employer is able to claim the credit for their current or former
employees.
· MEWAs - if the MEWA neither pays wages
subject to payroll taxes nor reports wages on an employment tax
return on behalf of the participating employers in the MEWA, then
the MEWA is not the “premium payee” and therefore not entitled to
the COBRA tax credit. Instead, each employer is the premium payee
and thus entitled to the tax credit.
· Business reorganizations - if the seller maintains a group
health plan and remains obligated to offer COBRA continuation to
M&A qualified beneficiaries after a business transaction, the
seller is the premium payee entitled to the COBRA payroll tax
credit.
Form 941 filings for the second quarter are due by
July 31st. This includes COBRA subsidies paid by employers during
the months of April, May and June. Employers that are premium
payees should review this information and work with their CPA or
tax advisor to ensure applicable tax credits are claimed.
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