ARPA & Payroll: The COBRA Premium Tax Credit

A year after the onset of the Coronavirus pandemic, The American Rescue Plan Act (ARPA) established the second ever COBRA premium subsidy for continuation coverage....

(group health coverage) from April 1, 2021 through September30, 2021. This subsidy is purposed to work in conjunction with several other programs to offer COVID-19 relief to employees as our nation progressively returns to some normalcy in 2021.
 
Employers with plans subject to COBRA or “like-COBRA coverage”, such as state continuation, must claim the COBRA premium tax credit, in order to recoup the premiums that have been subsidized during the ARP Premium Assistance Period this year.  

​What coverage premiums are subsidized? Like the ARRA COBRA subsidy of 2009, during the Great Recession, any group health plan coverage subject to COBRA, with a couple of exceptions, is subsidized at 100% so that eligible COBRA participants and qualified beneficiaries may take advantage of this relief from April through September 2021. Any “group health plan” can be defined as medical, dental, vision, and those plans that operate for the purposes of providing healthcare such as HRAs and HSAs (typically tied to a high deductible health plan).  The exempt plans during the Premium Assistance Period are healthcare FSA’s and QSERHAs.  Generally speaking, typical COBRA coverage, such as medical, dental, and vision plans will be subsidized and employers need to know this in order to receive reimbursement via the COBRA premium tax credit. 

What about the 2% fee? The ARP allows for the “total COBRA premium” to be subsidized, and as such, that total includes the 2% administrative fees often added to the monthly premium by fiduciaries or their third-party administration vendors.
 
How do employers get the COBRA premium tax credit? At this stage, we know that the impacted employers will need to report subsidized COBRA premiums on their quarterly taxes during the subsidy period in order to receive the credit from the IRS. Updated forms are in the works for 2021 quarterly payroll purposes, though, the guidance on the specifics of when the IRS will issue out the COBRA subsidy tax credits remains unclear. (The question of will this be done quarterly or at year-end is not yet answered). 

What’s in the works? The Internal Revenue Service will be issuing further guidance on this new subsidy and the COBRA premium tax credit for both employee tax payers, and Employers on a national level. The IRS is posed to release an updated Form 941 in 2021 allowing employers to claim the COBRA premium subsidy for the April – Sept period.  Recently, the IRS confirmed a revision to Form 7200 is on its way, which will accommodate employers when the premiums cost exceed payroll tax liability. 

What can employers do now?
COBRA premiums or state continuation (aka mini-Cobra) premiums will need to be tracked carefully, as will those qualified beneficiaries who are considered to be eligible for the premium subsidy during 2021. See our articles about the ARP COBRA subsidy here and here for more guidance on determining who is eligible. Employers are encouraged to keep good records of those who are Assistance Eligible Individuals, as well as those who need the opportunity to elect COBRA/the ARP subsidy. Gather subsidized premium records, such as reports and be sure to track the name of the participants receiving the subsidy as well as their COBRA monthly premium totals and coverages such as medical, dental and vision. Employers will need this data for payroll taxes and in order to receive the COBRA premium tax credit.
 
How will CobraHelp assist Employers with the COBRA Premium Tax Credit?
CobraHelp clients can rest assured that the monthly premiums of COBRA participants are carefully tracked, as is the subsidy on any Assistance Eligible Individual accounts. These premiums are reported back to the employer each month in the form of monthly premium reports and any CobraHelp customer may request custom reports (fee applies) if the standard premium report (with subsidy information) does not suite their payroll needs. 

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