A comprehensive IRS notice will be issued soon explaining how employers can apply for a new tax credit for providing health coverage to employees who were involuntarily terminated or had their hours reduced.
The coming notice will be in a question-and-answer format, with a major focus on which individuals and what types of coverage are eligible for the COBRA premium subsidy, according to Rachel Leiser Levy, IRS associate chief counsel (employee benefits, exempt organizations, and employment taxes).
Speaking May 10 at the American Bar Association Section of Taxation virtual meeting, Leiser Levy discussed the IRS’s plans to implement a provision of the American Rescue Plan Act of 2021 (P.L. 117-2) that created a 100 percent COBRA premium subsidy and special COBRA enrollment rights for qualified individuals who lost group health plan coverage because of an involuntary termination of employment or reduction in hours during the coronavirus pandemic.
The COBRA premium subsidy is available for up to six months (from April 1 to September 30), and employers that provide it are entitled to a refundable tax credit for the subsidy amount.
“We know that this guidance is eagerly anticipated, and that people had hoped to maybe have seen it earlier than this meeting,” Leiser Levy said. “It’s an important provision, a priority, and we want to make sure we answer the questions we need to answer and that the answers make sense and are administrable.”
The notice will likely address around 100 questions, with many focusing on who is eligible for premium assistance, Leiser Levy said.
“And then we break it down into those individuals who’ve experienced a reduction in hours . . . and those who have had an involuntary termination of employment,” Leiser Levy said. Because determining what constitutes an involuntary termination can be tricky, there will be several questions and answers on that topic, she added.
The notice will also address what type of coverage is eligible for premium assistance, Leiser Levy said, noting that “the premium isn’t necessarily 100 percent mapped to COBRA eligibility itself.”
Other issues to be covered are determining when the premium assistance period begins and ends and detailing how the premium subsidy interacts with COVID-19 relief granted by federal agencies that extended and loosened COBRA requirements, Leiser Levy said.
“We’ll also look at payments to insurers under federal COBRA, and we’ll also look at comparable state COBRA laws and how those interact with premium assistance,” Leiser Levy said.
The notice will address how employers are to calculate the premium subsidy credit amount, and it will outline the mechanics for claiming the credit, which will be similar to the process for claiming the employee retention credit and the credit for paid sick leave, Leiser Levy said.