The Internal Revenue Service has provided guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Notice 2021-31 PDF provides guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA.
The American Rescue Plan provides a temporary 100% reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment. The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available with respect to continuation coverage provided for those events under comparable State laws, sometimes referred to as "mini-COBRA."
The premium assistance applies to periods of health coverage on or after April 1, 2021, through September 1, 2021. An employer or plan to whom COBRA premiums are payable is entitled to a tax credit for the amount of the premium assistance.
