Important information about payroll tax credits
President Biden signed the latest COVID-19 relief on March 11. The new legislation, known as the American Rescue Plan Act (ARPA), contained several provisions designed to help employers and employees return to normalcy after more than a year of the Covid-19 pandemic. This article will explain the COBRA-premium tax credit.
ARPA establishes a 100 percent COBRA-premium subsidy for continuing health coverage from April 1, 2021, through September 30, 2021. The federal government will pay for continuing coverage by reimbursing employers with payroll tax credit through Form 941, the quarterly employment tax return. If this sounds vaguely familiar, it should. A similar program was created 12 years ago during the Great Recession in the American Recovery and Reinvestment Act (ARRA). ARRA allowed workers who were involuntarily terminated to be eligible for health coverage for up to 15 months at a reduced rate through a COBRA-premium subsidy. Through ARRA, employees could continue health coverage by paying 35 percent of the premiums with employers paying the remaining 65 percent. Employers were reimbursed with a payroll tax credit claimed through Form 941. The more things change, the more they remain the same.
Beginning April 1, the ARPA COBRA premium subsidy must be offered to:
- Employees who are, beginning April 1, involuntarily terminated or have reduced schedules that no longer qualifies them for coverage
- Individuals who are currently enrolled in COBRA coverage.
There is also a special enrollment period that is available for:
- Employees who did not initially elect COBRA coverage but whose COBRA periods have not yet expired. The subsidy is offered for the remaining months of their coverage period; and
- Employees who did elect COBRA coverage, allowed coverage to lapse, but their coverage period has not yet expired. They may have allowed their coverage to lapse because they could no longer afford the COBRA premium payments.
The special enrollment period opens on April 1 and closes after 60 days when notice of the special enrollment period is delivered to affected former employees.
So, what should my notice say?
- The first notice is required to inform Assistance Eligible Individuals (AEIs) of the availability of the subsidy and of the option to enroll (including the option to enroll in different coverage if permitted by the plan). It must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021, and ending on September 30, 2021.
- The second notice must be sent to individuals and their qualified beneficiaries who elected but discontinued COBRA coverage before April 1, or did not elect COBRA, but whose coverage period has not ended. They must receive notice of the extended election period by May 30, 2021.
- The third notice must be provided to AEIs between 45 and 15 days before the date on which his or her subsidy will expire, unless the subsidy is expiring because they have gained eligibility for coverage under another group health plan or Medicare.
The DOL has released model notices:
- Model General Notice and COBRA Continuation Coverage Election Notice
- Model Notice in Connection with Extended Election Period
- Model Notice of Expiration of Premium Assistance
As next steps, we recommend employers do the following:
- Amend standard notices to conform to those suggested by the DOL for employees who are involuntarily terminated or offered reduced schedules that make them no longer qualified for health coverage.
- Identify and notify all former employees who lost group health plan coverage due to involuntary termination or a reduction in work hours and are still within their maximum coverage period. This period may extend as far back as October 2019.
- Make sure that appropriate notices are sent to the eligible individuals when they are at the end of their subsidy period.
- Be alert for guidance regarding tax credits. The IRS is expected to revise Forms 941 and 7200 to allow employers to claim the COBRA subsidy credit soon (well, “IRS soon”).
Finally, the U.S. Department of Labor recently issued FAQs on COBRA under ARPA. Take a look, and if you have questions let us know. We’ll keep a light on for you.