IRS updates COBRA guidance for employers

The Internal Revenue Service has issued guidance on tax breaks under the American Rescue Plan Act of 2021, for continuation of health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice 2021-31 provides guidance for employers, plan administrators and health insurers regarding the new credit available to them for providing continuing health coverage to certain individuals under COBRA. Notice 2021-31 provides information regarding the calculation of the credit, eligibility, premium assistance period and other information to understand the credit.

The American Rescue Plan provides a temporary, 100% reduction in the premium that individuals would have to pay when they elect COBRA 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 reduction in the premium and the credit are also available with respect to coverage under comparable state laws, a.k.a. “mini-COBRA.”

Bloomberg via Getty Images