COBRA and the American Rescue Plan Act

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WHAT IS THE COBRA SUBSIDY CREDIT?

The Consolidated Omnibus Budget Reconciliation Act of 1985, also known as “COBRA”, was signed 35 years ago to provide families a way to temporarily maintain their employer-provided health insurance when an employee has lost their job or has a reduction in their hours worked. This is an all-too-common situation during the COVID pandemic, and in 2021 to combat the issue, the American Rescue Plan Act (ARPA) included provisions providing a COBRA premium assistance subsidy to help impacted workers afford health coverage.

The provisions enacted by ARPA require employers to provide a COBRA premium assistance subsidy to Assistance Eligible Individuals for a six-month period, from April 1, 2021, to September 30, 2021. In other words, employers are required to pay an Assistance Eligible Individual’s COBRA premium for six months.

Once your employee is set up on COBRA through your benefits provider, RASI will provide tax assistance to recoup your expense for providing employees with a COBRA premium assistance subsidy.

CAN AN EMPLOYER CLAIM A TAX CREDIT FOR PROVIDING A COBRA PREMIUM ASSISTANCE SUBSIDY?

Yes, the COBRA premium assistance tax credit is available to employers that are required to pay employee’s COBRA premiums. The tax credit can be claimed on IRS Form 941 for quarters 2 & 3 of 2021.

HOW IS THE PREMIUM ASSISTANCE TAX CREDIT CALCULATED FOR PROVIDING COBRA PREMIUM ASSISTANCE?

The COBRA premium assistance tax credit is based on the number of COBRA premiums an Assistance Eligible Individual would have paid for continuing COBRA coverage had the employer not been required to provide assistance under ARPA.

If the employer does not subsidize COBRA premium costs, the premium assistance tax credit for a quarter is equal to the number of COBRA premiums paid by the employer. The premium assistance tax credit amount also includes any administrative costs otherwise allowed (that is, generally 102 percent of the cost applicable to the premium can be passed on to the employee).

If the employer does subsidize COBRA premiums, the premium assistance credit is equal to the amount that the employee would have paid for continuing COBRA coverage.

Example #1: if an employer’s policy was to pay 50% of COBRA premiums, the credit each month would be 50% of the amount the employer actually paid for the COBRA premiums from April 1, 2021, through September 30, 2021.

Example #2: if an employer’s policy was to pay $500 of COBRA premiums, the credit each month would be equal to the amount actually paid by the employer less $500.

WHEN CAN AN EMPLOYER CLAIM THE COBRA PREMIUM ASSISTANCE TAX CREDIT?

An employer can claim the COBRA premium assistance tax credit in the quarter in which the Assistance Eligible Individual makes the request for COBRA premium assistance—for Example, if an Assistance Eligible Individual request COBRA premium assistance on June 15, 2021, for the months of April, May, and June, the employer is eligible on June 15, 2021, for the premium assistance credit for all three months. In this example, the tax credit would be claimed on the 941 for Q2 of 2021.

CAN THE COBRA PREMIUMS PAID AND USED TO CLAIM THE COBRA PREMIUM ASSISTANCE TAX CREDIT, BE USED TO CLAIM OTHER TAX CREDITS?

No, the COBRA premiums paid by employers and used to claim the premium assistance tax credit cannot be used to claim other tax credits or be applied to other grant programs as eligible expenses. This exclusion would be applicable to PPP forgiveness (Form 3508, Schedule A, Line 6), Restaurant Revitalization Fund grant eligible use of funds, Emergency Paid Sick Leave, and the Employee Retention Tax Credit.

HOW WILL THE COBRA PREMIUM ASSISTANCE TAX CREDIT BE CLAIMED ON THE 941?

The COBRA premium assistance tax credit will be claimed on the 941, Lines 11e, and Line 13f–if applicable, as an overpayment of taxes and the IRS will issue a check for the credit amount. However, the credit will first be used to satisfy outstanding amounts owed to the IRS.

IS THE COBRA PREMIUM ASSISTANCE TAX CREDIT CONSIDERED TAXABLE INCOME?

Yes. Under IRC §6432(e), taxable income includes amounts received under the COBRA premium assistance tax credit.

WHEN I RECEIVE THE REFUND FROM THE IRS, WHERE SHOULD THE AMOUNT BE CODED?

The amount should be coded to general ledger account number 3298 – COBRA Premium Assistance Credit.

WHEN COBRA PREMIUM ASSISTANCE IS PROVIDED TO AN EMPLOYEE, ARE THE AMOUNTS EMPLOYERS PAID DEDUCTIBLE EXPENSES?

Yes. The expenses are deductible for employers who have provided COBRA Premium Assistance to an employee.

WHERE CAN I FIND MORE INFORMATION REGARDING THE PREMIUM ASSISTANCE TAX CREDIT?

IRS Notice 2021-31 can be found HERE.

WHERE CAN I FIND MORE INFORMATION REGARDING THE PREMIUM ASSISTANCE SUBSIDY?

Find out more about the COBRA premium subsidy by visiting dol.gov/COBRA-subsidy, or contact a benefits advisor in the Employee Benefits Security Administration if you have questions by visiting askebsa.dol.gov or calling 1-866-444-3272.

The DOL also has a blog that can be found by visiting the following LINK.

The DOL has also provided some FAQs regarding the COBRA premium subsidy that can be found HERE

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FOR RASI CLIENTS:

Can RASI claim the COBRA premium assistance tax credit on my 941?

Yes, RASI can claim the COBRA Premium Assistance Tax Credit on your 941.

What does RASI need from the business in order to claim the COBRA Premium Assistance Tax Credit on my 941?

RASI needs two numbers each quarter your business would like to claim the COBRA Premium Assistance Tax Credit:

1) The number of employees receiving COBRA Premium Assistance; and

2) The total amount of COBRA Premium Assistance Tax Credit for each quarter. RASI does not need amounts by employee, a single total for the premium assistance tax credit is all that is needed each quarter.

When does RASI need the number of employees & total tax credit amount to claim on the 941 for Q1 and Q2?

This number of employees and the total amount of COBRA Premium Assistance Tax Credit need to be submitted to RASI via support ticket by July 12th for the 2nd quarter, and October 11th for the 3rd quarter.

If the data is received after those dates, the 941 can always be amended, for an additional fee, to claim the COBRA Premium Assistance Tax Credit.

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