New COBRA Subsidy Guidance from the IRS: Better Late Than Never


Notice 2021-31
The IRS recently issued much-anticipated guidance relating to the temporary COBRA premium assistance provisions enacted under the American Rescue Plan Act of 2021 (ARP). As you may recall, the ARP provides for a 100% COBRA premium subsidy, for a period of up to six months, which is available to certain employees and family members who lost plan coverage due to a reduction of hours or an involuntary termination of employment. See our dedicated ARP COBRA Subsidy Information for Partners page for links to a more detailed description of the ARP COBRA subsidy.

The IRS guidance, presented in the form of 86 Q&As, clarifies the parameters of the relief, provides helpful guidance on implementation and administration of the subsidy, and includes instruction to employers and other entities claiming the premium assistance credit. The Q&As are separated into the following categories:
  • Eligibility for COBRA Premium Assistance (Q&As 1-20);
  • Reduction in Hours (Q&As 21-23);
  • Involuntary Termination of Employment (Q&As 24-34);
  • Coverage Eligible for Premium Assistance (Q&As 35-42);
  • Beginning of COBRA Premium Assistance Period (Q&As 43-46);
  • End of COBRA Premium Assistance Period (Q&As 47-50);
  • Extended Election Period (Q&A 51-55);
  • Extensions Under the Emergency Relief Notices (Q&As 56-59);
  • Payments to Insurers Under Federal COBRA (Q&A 60);
  • Comparable State Continuation (Q&As 61-62);
  • Calculation of COBRA Premium Assistance Credit (Q&As 63-70); and
  • Claiming the COBRA Premium Assistance Credit (Q&As 71-86).

Some highlights from the Notice include:
  • Definition of Involuntary Termination of Employment. The ARP did not include a definition of “involuntary termination” of employment. The Notice defines involuntary termination of employment as a “severance from employment due to the independent exercise of the unilateral authority of the employer to terminate employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” The IRS confirms that this is a facts and circumstances determination. Examples are provided in the Notice (Q&As 24-34).
  • Coverage Eligible for Subsidy and Retiree Coverage. Premium assistance is available for coverage under any group health plan, except a Health FSA. This includes medical, dental-only, vision-only, and HRAs. Other benefits for which the subsidy may be available include onsite clinics, ICHRAs, standalone EAPs, and wellness programs. The IRS clarified that the subsidy is available for retiree coverage only if the retiree coverage is offered under the same group health plan as the coverage available to active employees, even if the retiree pays more than active employees, provided the amount charged to retirees does not exceed 102% of the applicable premium.
  • HRAs and COBRA Subsidy. Generally, eligibility for HRA coverage will end the period of COBRA premium assistance (as disqualifying coverage). Additionally, the IRS clarified that where an AEI elects HRA coverage during the Extended Election Period and declines retroactive coverage, the AEI will have access to the same level of reimbursements as before the qualifying event based on the original amount available immediately prior to the qualifying event, reduced by any reimbursements made after the qualifying event for expenses incurred prior to the qualifying event. However, the HRA may not reimburse expenses incurred after the qualifying event and before April 1, 2021.
  • Extended Election Period. The Notice confirms that the Extended Election Period applies only to a group health plan subject to federal COBRA (it does not apply small employers subject to State continuation laws).
  • Second Qualifying Events/Extension of Coverage. If an individual’s original qualifying event was a reduction of hours or an involuntary termination of employment, the COBRA subsidy is available to individuals who have elected and remained on COBRA for an extended period due to a disability determination, second qualifying event, or an extension under State mini-COBRA, to the extent the additional periods of coverage fall between 4/1/21 and 9/30/21. Since employers subject to federal COBRA are deemed the “premium payee” (the entity to which premiums are payable) for the COBRA subsidy, it is our understanding that employers subject to extensions under State mini-COBRA (e.g., New York employers), are responsible for the COBRA subsidy payments and entitled to the tax credit.
  • Severance or Other Employer Subsidy. If an employer subsidizes all or a portion of COBRA premiums (outside of the ARP subsidy), the employer may only claim a tax credit for the amount of premium the AEI would have actually been required to pay (i.e., the amount of COBRA premium less the employer subsidy).
  • Attestations – Reliance and Substantiation. Employers may rely on an individual’s attestation as to eligibility for disqualifying coverage, unless the employer has actual knowledge that the attestation is incorrect (such as when the employer knows that an individual has reached age 65 and is eligible for Medicare). Employers should keep records of AEIs’ attestations to substantiate eligibility for the premium assistance tax credit. ProBenefits will provide copies of attestations to our employer clients upon request. Please email if you need copies of attestation forms for your AEIs.
  • Claiming the Tax Credit. The quarterly premium assistance tax credit is claimed on Form 941. In anticipation of receiving the credit, an employer may reduce its employment tax deposits up to the amount of the anticipated credit and request an advance of the credit that exceeds the federal employment tax deposits available for reduction using Form 7200.

For a more in-depth overview of the guidance, see our detailed overview document.

If upon review of the IRS guidance, you determine that you need to add an individual in our system as a potential AEI or change an individual’s status as eligible or ineligible, please follow the AEI Update Instructions on how to update COBRA Qualified Beneficiary subsidy status. If you add a new potential AEI or mark an individual as eligible who was previously marked ineligible, those individuals will receive the appropriate ARP subsidy notifications. If you mark an individual as ineligible who was previously marked eligible (and thus received ARP subsidy notices), the individual will receive a denial notice. We are already receiving attestations back from potential AEIs so we encourage you to review this guidance and make necessary changes (if any) as soon as possible. Contact us at if you need assistance.

While the content of the Notice is extensive, the IRS acknowledges that certain additional issues related to the ARP COBRA subsidy are not addressed in this Notice and it is possible that additional guidance may be issued in the future. We will continue to monitor for additional guidance and will keep you updated on the latest.