The Internal Revenue Service issued additional guidance July 26 to employers, health insurers, and plan administrators on providing laid-off employees temporary assistance paying for COBRA continuation coverage and claim a corresponding tax credit.

The new guidance, in the form of 11 questions and answers, relates to the following aspects of the premium assistance and credit:

  • Eligibility for COBRA premium assistance for extended coverage periods
  • Managing the end of the premium assistance period for those who elected dental and vision coverage
  • Whether state continuation coverage programs provide comparable coverage when they cover a subset of state residents
  • Additional clarification on the entity that may claim the COBRA premium assistance credit

Refundable Tax Credit

The American Rescue Plan Act, enacted in March, provided a temporary 100% reduction in the premium that individuals pay when they elect COBRA continuation healthcare coverage following a reduction in hours or an involuntary termination of employment.

An employer, insurer, or multi-employer plan to which the COBRA continuation premiums are payable then claims a refundable tax credit against its share of Medicare taxes.

ARPA also temporarily extended the COBRA election period.

Premium assistance is available for the periods of COBRA coverage beginning April 1, 2021, and ending on the earliest of (i) Sept. 30, 2021; (ii) the end of their COBRA coverage period; or (iii) the date they become eligible for another group health plan or Medicare.

This is the third guidance release for COBRA premium assistance by the IRS, following an initial notice posted in April and a second set of guidance issued the following month.

The July notice is the first IRS guidance that even if an eligible individual's initial 18-month continuation coverage period has ended, they are still entitled to elect extended COBRA continuation coverage and eligible for the 100% premium subsidy.

Plan administrators must provide a Notice of Expiration of Period of Premium Assistance to eligible individuals no earlier than 45 days and no later than 15 days before their COBRA premium subsidy period expires.