COBRA premium assistance credit clarified further

By Dave Strausfeld, J.D.

Editor: Paul Bonner

In 11 questions and answers, the IRS gave additional guidance regarding temporary premium assistance for COBRA continuation coverage and claiming the COBRA premium assistance tax credit (Notice 2021-46). The notice supplements Notice 2021-31, which provided 86 questions and answers concerning temporary premium assistance for COBRA continuation coverage.

The premium assistance and credit are available under the American Rescue Plan Act (ARPA), P.L. 117-2, enacted in March, which provided for a temporary 100% reduction in the premium that individuals have to pay when they elect COBRA continuation health care coverage following a reduction in hours or an involuntary termination of employment. Notably, ARPA also temporarily extended the COBRA election period. Under ARPA, the employer, insurer, ormulti-employer plan to which the COBRA continuation premiums are payable can claim a refundable tax credit against its share of Medicare taxes in the amount of the premiums not paid by individuals eligible for COBRA premium assistance.

The premium assistance is available for periods of COBRA coverage beginning after April 1, 2021, but not for periods beginning after Sept. 30, 2021.

The 11 questions and answers in Notice 2021-46 pertain to the following aspects of the premium assistance and credit:

  • Eligibility for COBRA premium assistance for extended coverage periods;
  • What happens at the end of the COBRA premium assistance period for individuals who elected dental and vision coverage;
  • Whether state continuation coverage programs provide comparable coverage when they cover a subset of state residents; and
  • Additional clarification on the entity that may claim the COBRA premium assistance credit.

For more information about the temporary premium assistance and credit, see Bonner, "COBRA Premium Assistance Credit Under ARPA Clarified," The Tax Adviser (May 19, 2021).

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