IRS Guidelines on the COBRA Grant, Part III: Claiming the Premium Assistance Credit | Dickinson wright

Under the American Rescue Plan Act of 2021 (“ARPA”), a 100% COBRA grant is available to qualified beneficiaries who lose coverage due to involuntary termination or reduced hours. . The grant is available for the period April 1, 2021 through September 30, 2021, if the person is not eligible for other group health plan coverage or Medicare. For more information, please refer to our previous Customer Alerts on the New COBRA Grant which can be viewed here and here.

On May 18, 2021, the IRS issued Notice 2021-31, which provides helpful advice on a number of questions in the form of 86 FAQs. The first part of our series of customer alerts on the new COBRA subsidy (which can be viewed here) addressed the following issues:

  1. When Did an “Involuntary” Termination Occur?
  2. What events may constitute a “reduction in hours” for grant eligibility purposes?
  3. What group health plans must be offered to people eligible for assistance?

Our customer alert part II (which can be consulted here) addresses:

  • When is an Eligible Recipient an Eligible Person for Assistance?
  • What rights are available if a person eligible for potential assistance is entitled to an extended election period?

This final part III deals with matters relating to the premium assistance credit available to the person to whom premiums are payable for COBRA Continuing Coverage.

The ARPA amended the Internal Revenue Code (the “Code”) to provide that the person to whom premiums are payable for continued coverage is entitled to a “premium assistance credit” for each calendar quarter against. tax imposed by Section 3111 (b) of the Code 1.45% of the Medicare share of the FICA tax) in an amount equal to the premiums not paid by those eligible for assistance for COBRA coverage due to the grant. If the amount of the credit in a calendar quarter is more than the tax due (after reduction for other credits), the excess is treated as a refundable tax overpayment. The credit claimed in the tax year is included in the gross income of the premium recipient for that year.

Who can apply for the premium assistance credit?

The person authorized to apply for the premium assistance credit is:

  1. the multi-employer plan, in the case of a group health insurance plan that is a multi-employer plan;
  2. the common law employer who maintains the plan, in the case of a group health plan (other than a multi-employer plan) which is (a) subject to the federal COBRA, or (b) which is self-funded; and
  3. the insurer providing the coverage, in the case of any other group health plan not described in subsection (1) or (2) (generally fully insured coverage subject to state continuance coverage requirements).

Notice 2021-31 designates this person as the “premium beneficiary”. In most cases, the sponsor of the employer’s group health insurance plan will be the person entitled to claim the credit. This Customer Alert discusses the employer’s right to claim the Premium Assistance Credit, but keep in mind that the premium beneficiary could be a multi-employer plan or an insurer as described above.

How much is the premium assistance credit?

The credit for a quarter is generally equal to the COBRA premium for eligible beneficiaries in the same situation who are not eligible persons for assistance if the employer does not subsidize the COBRA premium for other eligible beneficiaries, including 2% administrative fee (c. COBRA premium.)

Is the credit reduced if the employer subsidizes the COBRA premium?

Yes. The credit is reduced if the employer pays part of the COBRA premium for other eligible beneficiaries who are not eligible persons. For example, if an employee who is involuntarily terminated on March 31, 2021, chooses COBRA and pays the active employee rate of $ 200 per month for three months, then is charged the full COBRA premium of $ 1,000 per month , the credit is $ 200 for three months (April, May and June) and $ 1,000 for the next three months (July, August and September) if the former employee continues to be a person eligible for assistance.

If the COBRA premium is currently less than the maximum allowable amount, can a plan increase the amount billed for COBRA coverage?

Yes. COBRA regulations allow a plan to increase the COBRA premium if the plan currently charges less than the maximum allowable amount (102% of premium.)

What is the amount of the credit if the group of eligible recipients includes both persons eligible for assistance and persons not eligible for assistance?

The credit can only be claimed in respect of those eligible for assistance. If the family members who are eligible beneficiaries include one or more persons who are not persons eligible for assistance, the premium is allocated first to persons eligible for assistance and then to persons not eligible for assistance. help. For example, if an employee is a person eligible for assistance and the covered spouse is not an eligible person, the credit would be limited to the COBRA premium for the coverage reserved for employees.

How is the premium assistance credit for an individual health reimbursement scheme (HRA) calculated?

The credit of an individual HRA cover is limited to 102% of the amount actually reimbursed in the month for each Person Eligible for Assistance. Thus, the credit may not be the same every month, as the actual repayment of each eligible beneficiary must be tracked for the month to calculate the credit.

When is the employer entitled to the credit?

When a person eligible for assistance makes the COBRA election, the employer is entitled to the credit for the periods of coverage that began before that date. For each subsequent coverage period, the credit can be claimed from the first day of that coverage period.

Example: The period of coverage is the calendar month. An individual eligible for assistance makes a COBRA election on June 17, 2021, as of April 1, 2021. As of June 17, 2021, the employer is entitled to a credit equal to the COBRA premium not paid by the individual eligible for help for April, May and June. The credit can then be claimed from July 1 and August 1 and September 1 for the months of July, August and September.

If the employer is the beneficiary of the bonus and uses a third party as a COBRA administrator, he will have to keep in close contact with the COBRA administrator to know when a COBRA choice is made by a person eligible for assistance and therefore when the credit associate can be claimed.

How does the employer claim the premium assistance credit?

The employer claims the credit by reporting the credit (the amount of unpaid COBRA premiums for those eligible for assistance) and the number of people receiving a COBRA grant on the appropriate lines of their federal employment tax return. Usually, this is Form 941, Employer’s Quarterly Federal Tax Return.

The employer can:

  1. reduce its federal employment tax deposits, including withheld taxes, that it would otherwise be required to deposit, up to the amount of the anticipated credit; and
  2. Apply for an advance credit advance that exceeds federal employment tax deposits available for reduction by completing Form 7200, Employer Advance Payment of Credit Due to COVID-19.

As of the date of this customer alert, Form 7200 has been updated to add appropriate lines to use for requesting a premium assistance credit advance, but Form 941 has not yet been updated.

Should an employer repay the credit if a person eligible for assistance does not inform them that the person eligible for assistance is no longer eligible for the grant because they have become eligible for another plan coverage group health or Medicare?

No, as long as the employer does not know the person’s eligibility for the other coverage.

Can an employer claim the premium assistance credit for amounts that count under other COVID relief provisions?

No. An employer cannot apply for a premium assistance credit for amounts that are taken into account such as:

  • Eligible salaries or eligible health care expenses under the CARES Act;
  • Sick leave salary eligible under the Emergency Paid Sick Leave Act (Article 3131 of the Code);
  • Qualified family leave salary under the Law on the Extension of Family and Emergency Medical Leave (Article 3132 of the Code); or
  • Employee retention credit claimed by an employer who is the subject of a closure by government order due to COVID-19 (Code article 3134).

About Clara Barnard

Clara Barnard

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