IRS FAQs on COBRA Subsidies

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The Internal Revenue Service (IRS) has published frequently asked questions (FAQs) on the application of the American Rescue Plan Act (ARP) subsidies for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The FAQs cover a wide range of topics.

Background
The ARP subsidy covers 100% of COBRA and State mini-COBRA premiums from April 1–Sept. 30, 2021, for certain Assistance Eligible Individuals whose work hours were reduced or whose employment was involuntarily terminated. The subsidy is funded via a tax credit provided to employers, insurers or group health plans, according to the terms of the statute.

FAQ Topics 
Among the topics covered are how to calculate and claim the tax credit, including when a third-party payer is involved. According to the guidance, employers must document individuals’ eligibility for COBRA premium assistance in order to claim the credit. The FAQs further clarify that: 

  • The subsidy is available for extended periods of COBRA coverage between April 1 and Sept. 30, 2021, due to a disability, second qualifying event or extension under State mini-COBRA.

  • Involuntary termination includes constructive discharge and termination for cause, but not gross misconduct.

  • Health reimbursement arrangements, dental-only plans and vision-only plans are covered by the subsidy.

Action Steps 
Employers should review the IRS FAQs in their entirety to ensure compliance with the ARP, especially with respect to notice and documentation obligations.

Government Notices, AllAleks Alvarado