On May 18th, 2021, the Internal Revenue Service (IRS) issued COBRA continuation health coverage guidance relating to tax breaks. Accordingly, the American Rescue Plan Act of 2021 (ARP) provides tax credits involving continuation health coverage. Specifically, under Notice 2021-31, the IRS provides guidance for employers, plan administrators, and health insurers. The Notice includes information regarding the new credit available to them for providing COBRA continuation health coverage to specific individuals. Earlier, in March 2021, the IRS announced changes to their Employee Retention Credit (ERC) program. The ERC issues refundable tax credits to employers who retained employees during the COVID-19 pandemic.

Connection Between the ARP and COBRA

The ARP provides a temporary 100% reduction in the premium that individuals would pay when electing COBRA continuation health coverage. Generally, the election for coverage occurs following a reduction in hours or involuntary termination of employment. Additionally, Notice 2021-31 provides a corresponding tax credit for entities that maintain group health plans. Overall, these groups include employers, multiemployer plans, and insurers. The 100% premium reduction and the credit are also available for events under similar state laws known as “mini-COBRA” laws.

Overview of IRS Notice 2021-31

In general, Notice 2021-31 provides information regarding the following:

  • How to calculate the credit;
  • The eligibility of individuals;
  • An explanation of the premium assistance period; and
  • Other information vital to employers, plan administrators, and insurers to understand the credit.

Furthermore, the Notice contains 86 questions and answers addressing the COBRA continuation health coverage under the ARP. Previously, the IRS released associated Frequently Asked Questions on April 7th, 2021. For the most part, the federal agency claims that Notice 2021-31 provides more detail than earlier releases. Markedly, the latest Notice includes numerous examples of the practical application of premium assistance and credit.

As the IRS releases new information, the agency will continue to update information related to health plans on its website.