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American Rescues Plan Act – COBRA Subsidy


While I do not necessarily write about benefits for individuals, this one happens to affect the employer, or should I say, their previous employer, which could be you. The ARP Act allows involuntarily terminated employees under Subtitle F – Preserving Health Benefits For Workers to receive premium assistance on their COBRA.

The premium assistance is in the form of 100% paid for health insurance for the separated employee and their dependents for the coverage period beginning April 1 to September 30, 2021. Newly terminated employees just entering eligibility for COBRA are eligible for the premium assistance, as well as those who had not previously elected, but still within their COBRA maximum period. That could be an employee you terminated back in November 2019. Yes, 2019!

Employers will pay the insurance premium for their COBRA employee and in turn, they will be ‘reimbursed’ on their 941, or similar payroll tax return, in the form of a tax credit, that will also include a 2% administrative fee. The premium assistance is available as long as the individual is within their COBRA maximum period and they are not eligible for another group health plan coverage.

How will the separated employee know about the free insurance? The Act covers that too. You, the employer, will be required to provide notice to the qualified separated individual as to their eligibility for premium assistance and the option to enroll. We expect a model notice to be available by early April.

No double benefit dipping! An employer is prohibited from taking the tax credit on this premium assistance if they also used the same insurance amount as a credit towards the Employee Retention Tax Credit (ERC) or the Families First Coronavirus Response Act (FFCRA) Sick, Family, or EFMLA leave credit.

The IRS recently published Notice 2021-31, that provides 41 pages of Q&A and sample scenarios to help you determine qualification and guidance under this provision of the Act.

If you utilize a payroll service, such as PayMaster, you will need to report to them the amount of premium tax credit you are eligible for in a timely manner. This way it can be accounted for on the quarterly payroll tax return and you will receive a credit/refund.

If you have read this and you are wondering what COBRA is in the first place, you can find out more in this article

While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. As with every other COVID-19 related Act, situations and rules get defined over time and things can and do change. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, COBRA Administrator, and/or HR Professional.

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