IRS provides added insight on COBRA subsidies

The IRS has issued new guidance on the American Rescue Plan Act’s subsidies for continuing health coverage under COBRA. The IRS discusses the background of the subsidy, and includes answers to 86 questions about it, in a 41-page notice issued this month.

The federal stimulus law, signed earlier this year, pays COBRA premiums for eligible workers who lost their job during the pandemic.

The topics covered by this month’s IRS notice include how to calculate and claim the tax credit, including when a third-party payer is involved. The tax agency’s guidance also says employers must document individuals’ eligibility for COBRA premium assistance. The Q&As also clarify that:

• The subsidy is available for extended periods of COBRA coverage between April 1 and Sept. 30, 2021, due to a disability, a second qualifying event or extension under state mini-COBRA.

• Involuntary termination includes constructive discharge and termination for cause, but not gross misconduct.

• HRAs and dental-only and vision-only plans are covered by the subsidy.

The IRS is considering additional questions about the COBRA subsidy and may issue further guidance.