COBRA Premium Assistance and Tax Credit

Earlier this year, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. ARPA provides for COBRA premium assistance to help assistance eligible individuals continue health benefits provided they meet eligibility requirements between April 1, 2021 and September 30, 2021. An assistance eligible individual is a COBRA qualified beneficiary who is eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours or an involuntary termination of employment and elects COBRA continuation coverage. An individual is not eligible for the premium assistance if they are eligible for other group health insurance.

If an individual becomes assistance eligible , the individual will not be required to pay any COBRA premiums. Instead the amounts will be paid by the employer. The employer must notify the employee of this availability when they become eligible due to reduced hours or termination of employment. In addition, within 15-45 days of the coverage period ending under this assistance plan, the employer must notify the individual of the upcoming termination.

An employer or plan who takes advantage of the premium assistance by making these payments, may take a tax credit for the amount of premium assistance paid by the employer. It is expected that this credit will be claimed on Form 941 and employers will be able to file Form 7200 to claim an advance on the subsidy. The IRS has yet to release revised forms and instructions related to this credit.