October 20, 2021

Volume XI, Number 293

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IRS Issues Additional Guidance on the COBRA Subsidy

On July 26, 2021, the Internal Revenue Service (IRS) released Notice 2021-46 to provide additional guidance on the Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidy under the American Rescue Plan Act of 2021 (ARPA). On May 18, 2021, the IRS released Notice 2021-31 to address issues related to subsidy eligibility and calculation of the tax credit. The new guidance supplements Notice 2021-31 and addresses additional issues. Although Notice 2021-46 only includes 11 questions and answers, it provides important information for employers.

Availability of the Subsidy

In Notice 2021-31, the IRS explained that if the initial qualifying event was a reduction in hours or involuntary termination of employment, the subsidy is available to individuals who elected and remain on COBRA for an extended period due to a second qualifying event (e.g., a disability determination), provided that the extended period of coverage falls between April 1, 2021, and September 30, 2021. Notice 2021-46 expands this guidance and provides that the subsidy is available even if the individual did not elect the extended coverage before April 1, 2021.

ARPA provides that eligibility for other group health coverage or Medicare renders an individual ineligible for the COBRA subsidy. Notice 2021-46 clarifies that the disqualifying coverage terminates eligibility for the subsidy, “even if [such] coverage does not include all of the benefits provided by the previously elected COBRA continuation coverage.” For example, eligibility for Medicare would end eligibility for a subsidy for dental-only or vision-only COBRA coverage.

Special rules apply for state continuation programs, which are generally not subject to COBRA, providing comparable coverage to COBRA continuation coverage. Notice 2021-46 confirms that “[a] state program does not fail to provide comparable coverage to [f]ederal COBRA continuation coverage solely because the program covers only a subset of [s]tate residents,” such as state or local governmental employees.

Claiming the Tax Credit

As indicated in Notice 2021-31, the premium payee claims the credit. In the case of a group health plan (other than a multiemployer plan) that is subject to COBRA, the common law employer maintaining the plan is generally the premium payee. Notice 2021-46 clarifies that the “common law employer” is “the current common law employer for [a]ssistance [e]ligible individuals whose hours have been reduced or the former common-law employer for those individuals who has been involuntarily terminated from employment.”

Notice 2021-46 also includes helpful information for situations involving multiple employers, including the following:

  • If a group health plan (that is subject to COBRA) “covers the employees of two or more members of a controlled group, each common law employer that is a member of the controlled group is the premium payee entitled to claim [the tax] credit with respect to its employees or former employees” (subject to certain exceptions such as a business reorganization). Therefore, the entity sponsoring the plan may not be entitled to the credit.

  • If a group health plan “covers the employees of two or more unrelated employers, the [entity] entitled to claim the premium assistance credit is [generally] the common law employer” (subject to certain exceptions such as a business reorganization). Therefore, a multiple employer welfare arrangement (MEWA) may not be entitled to the credit.

  • In the event of a business reorganization, the seller may remain obligated to continue COBRA coverage for certain individuals after the transaction. If so, the seller is entitled to claim the credit even if the common law employer of the individual is in the buyer’s group.

© 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.National Law Review, Volume XI, Number 222
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About this Author

Shareholder

Jason Rothman is a shareholder in the Cleveland office of Ogletree Deakins. As a member of the employee benefits practice group, Jason advises firm clients on all areas of employee benefits and executive compensation compliance. He advises clients on their tax-qualified plans including plan design and adoption, day-to-day plan operation, fiduciary compliance, IRS and DOL plan audits and submissions under the Employee Plans Compliance Resolution System (EPCRS), the Voluntary Fiduciary Correction Program, and the Delinquent Filer Voluntary Compliance Program. In addition, Jason advises...

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Deborah Andrews Employee Benefits & Executive Compensation Attorney Ogletree Deakins Washington D.C.
Of Counsel

*Licensed to practice in North Carolina and Georgia only. Practice in D.C. under supervision pursuant to Rule 49 of the D.C. Court of Appeals.

Ms. Andrews’ practice encompasses a broad range of employee benefits and executive compensation matters, including compliance with the Internal Revenue Code, ERISA and the Affordable Care Act. She regularly represents clients before the Department of Labor and the Internal Revenue Service regarding the correction of plan document and operational failures.

In addition, Ms. Andrews provides guidance on executive compensation issues and...

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