Initial Summary of IRS Notice 2021-31

On May 18, 2021, the IRS published Notice 2021-31, providing guidance and clarification on the premium assistance and tax credits available for COBRA and state continuation health coverage per the American Rescue Plan Act of 2021 (ARPA). In addition to a summary overview, the Notice provides clarification on many issues regarding administering the premium assistance subsidies and tax credits, via 86 questions and answers. Highlights include:

Of Significant Importance

  • Employers may require individuals to provide certification or attestation of their eligibility before treating them as an assistance eligible individual (AEI). Further, in order to claim the payroll tax credit, the employer must retain such certification or attestation.
  • Eligibility for other group coverage impacts eligibility for the premium assistance only if the individual is actually permitted to enroll in that other coverage mid-year. If the individual is locked out of enrollment mid-year due to the lack of a qualifying event, the eligibility for the other coverage is disregarded and the individual is eligible for the premium assistance. It is important to note, however, that an individual who lost eligibility for the employer’s plan within the last year due to termination of employment or reduction of hours would still have a HIPAA Special Enrollment Right to enroll in their own or a spouse’s group health plan, and would therefore be ineligible for premium assistance.
  • The premium assistance indeed applies to HRAs.

Employer Involvement and Duration of Premium Assistance

  • The ARPA COBRA tax credit is claimed by the person to whom premiums are payable (also sometimes referred to as the “premium payee”). To re-emphasize, the premium payee is the employer for a self-insured plan and for a fully insured plan subject to COBRA, the carrier for a fully insured plan not subject to COBRA (i.e., state continuation only), and the plan for a multiemployer plan.
  • Employers who had a decrease in employees such that they are not subject to federal COBRA this year, still have to offer COBRA premium assistance based on their status as a larger employer in 2020 (for AEIs who were due an offer of COBRA in 2020).

The ARPA COBRA premium assistance period is generally from April 1, 2021, through September 30, 2021. However, COBRA premium assistance is available, for those who qualify, through the last day of the last period of coverage beginning on or before September 30, 2021, even if the period of coverage extends into October. For example, the last two-week period of coverage for September 2021 is from September 19, 2021 through October 2, 2021. In this case, COBRA premium assistance is available through October 2, 2021.

  • Notwithstanding an agreement between an employer subject to federal COBRA and its insurer for the insurer to collect COBRA premiums directly from the qualified beneficiaries, the employer remains obligated to pay the premium to the insurer for the months of COBRA premium assistance with respect to an AEI.
  • An employer may not receive the tax credit associated with an insured plan subject solely to state continuation law (e.g., very small fully insured plans or church plans) with respect to the requirement to provide continuation coverage, even if the employer pays the full premium to the insurer.
  • The premium payee can get an ARPA COBRA premium subsidy tax credit, but cannot also be reimbursed for those same premiums by treating them as qualified wages under the FFCRA. If a premium payee reimburses an AEI for premiums that should have been covered by the subsidy, then the premium payee is entitled to the premium subsidy tax credit on the date the premium payee reimburses the AEI.
  • If a third party, such as a charity, pays an AEI’s premium that should have been covered by the subsidy, then the premium payee should reimburse the AEI for the premium, unless the premium payee is aware that the individual assigned the right to the reimbursed premium to the third party.

AEI Eligibility

  • COBRA premium assistance is available to individuals who have elected and remained on continuation coverage due to disability, second qualifying event, or an extension under state continuation coverage, so long as the original qualifying event was a reduction in hours or an involuntary termination of employment and to the extent the extended period of coverage falls between April 1, 2021, and September 30, 2021.
  • An individual who is eligible for other group stand-alone dental or vision coverage remains eligible for the premium assistance for medical coverage.
  • Whether retiree health coverage will impact eligibility for premium assistance depends on whether the retiree health coverage is offered under the same group health plan as COBRA continuation coverage or under a separate group health plan. An individual is not eligible for premium assistance if offered retiree health coverage that is not COBRA continuation coverage and is coverage under a separate group health plan that the plan under which the COBRA continuation coverage is offered. However, if the retiree health coverage is offered under the same group health plan, the offer of said coverage does not impact eligibility for premium assistance.
  • An individual is not eligible for premium assistance if they do not meet the definition of a qualified beneficiary under federal COBRA. For reference, “qualified beneficiary” is defined as someone who was a beneficiary under the plan on the day before the qualifying event.
  • COBRA premium assistance does not apply to the portion of the premium related to continuation coverage for individuals who are not qualified beneficiaries. This means that premiums paid for a spouse or dependent who was not a beneficiary under the plan before the qualifying event are not eligible for premium assistance (since such spouse or dependent is not a qualified beneficiary). In other words, a spouse (or dependent) added to the plan at open enrollment by COBRA qualified beneficiary is not eligible for premium assistance.
  • Any late or unpaid premiums for retroactive COBRA continuation coverage elected pursuant to the Emergency Relief Notices does not impact an individual’s eligibility for ARPA COBRA premium assistance.

Involuntary Termination

  • Involuntary termination includes when an individual voluntarily chooses to be terminated due to being offered a severance agreement in light of an imminent termination. This is also true for the same situation, but the individual chooses to retire. Further, it applies to a reduction of hours due to an individual’s choice to be furloughed due to an impending furlough.
  • To determine whether termination is involuntary, a facts and circumstances test is used. The notice provides an example that explains that termination is involuntary, even if it is designated as voluntary, when the facts and circumstances indicate that the individual was willing and able to continue working but for the voluntary termination, the employer would have terminated the individual (and the individual was aware that the employee would be terminated).
  • Absence from work due to disability or illness is not an involuntary termination unless the employer has taken action to terminate employment. However, it could be a reduction in hours that will give rise to premium assistance if the person loses coverage as a result of the leave.
  • Termination due to general concerns about workplace safety, a health condition of the employee or a family member, or other similar issues, generally will not be involuntary termination. This is because the actual reason for the termination is unrelated to the action or inaction of the employer.
  • Employees who quit because they don’t have childcare would not be AEIs; but if they remain employed, take leave for that reason, and lose coverage this would be considered a reduction in hours that would make them an AEI.
  • Involuntary termination includes a situation where an employee quits because the employer initiates a reduction in hours.
  • An employer’s decision not to renew an employee’s contract is an involuntary termination if the employee is willing and able to continue the employment relationship. However, if all parties always understood that the contract was for specified services over a set term and would not be extended, the completion of the contract without it being renewed is not an involuntary termination.

Extended Election Period

  • An AEI may decline to elect the COBRA continuation coverage under the original COBRA election period and instead elect COBRA continuation coverage only for the extended period of coverage that begins on or after April 1, 2021. In the alternative, if the AEI elects COBRA continuation coverage retroactively, no COBRA premium assistance is available for periods of coverage beginning prior to April 1, 2021.
  • A qualified beneficiary who had a reduction in hours or involuntary termination may elect additional coverage during the extended election period (i.e., medical plan plus stand-alone vision) if they were enrolled in that coverage prior to the COBRA triggering event. They would qualify as an AEI with respect to all coverages elected (i.e., those elected prior to and during the extended election period).
  • An individual who otherwise would be an AEI except for eligibility for other group coverage or Medicare still has the right to enroll during the extended election period, but would not receive premium assistance.
  • Even if an employer allows AEIs to enroll in different coverage than what they had the day before the qualifying event, COBRA premium assistance will not be available for coverage with a greater premium. The AEI does not have an option to elect the higher cost coverage and pay the difference.
  • Employers must place an AEI in similar a plan provided to active employees if the plan the AEI was enrolled in is no longer offered.


  • The penalty due from an AEI who fails to provide notice of his or her eligibility for other coverage under a group health plan or Medicare is not payable to the employer, plan, or issuer who receives the premium assistance credit.
  • The extensions of timeframes available under the Emergency Relief Notices do not apply to the ARP extended election period notice or the ARP extended election period.

Calculation of the COBRA Premium Assistance Credit Amount

  • Generally, the credit amount is 102% of the COBRA applicable premium, assuming the employer does not subsidize the COBRA premium for similarly-situated QBs who are not AEIs. If the employer does subsidize such cost for non-AEI QBs, then the amount of the credit is 102% minus the amount provided to non-AEI QBs (i.e., the credit does not include the amount of subsidy that the employer would have otherwise provided). .
  • If a plan previously charged less than the allowable 102% COBRA applicable premium rate, the plan may increase the charged amount to 102% of the COBRA applicable premium rate, and the plan can claim a credit for the full 102% amount. This is true even if the employer also provides a taxable severance benefit to the AEI.
  • The premium assistance credit does not apply to non-AEI COBRA QBs, which appears to include domestic partners. The IRS notice has examples of how to calculate the credit where a non-AEI COBRA QB is covered through an AEI.

Claiming the COBRA Premium Assistance Credit

  • A premium payee claims the credit by reporting the credit and the number of AEIs receiving the COBRA premium assistance on the designated lines of Form 941, Employer’s Quarterly Federal Tax Return. In anticipation of the credit to which it is entitled, the premium payee may reduce the deposits of federal employment taxes (including withheld taxes) that it would otherwise deposit, up to the amount of the anticipated credit. Then, if the anticipated credit exceeds the federal employment tax deposit amount, the payee would request an advance of that amount by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
  • A premium payee would generally file Form 941 at the end of each quarter, but can file a Form 7200 (requesting advance payments) after the end of the payroll period in which the payee became entitled to the credit (but they cannot file Form 7200 for a period of coverage that has not begun). The notice includes examples, including how to claim the premium assistance credit if the payee has no employment tax liability.
  • A premium payee can still claim the premium assistance credit even if the AEI fails to provide notice that the individual is no longer eligible for the COBRA premium assistance (e.g., the individual is eligible for other group health plan coverage or Medicare), unless the payee has knowledge of the disqualifying coverage/Medicare.

As this guidance was just released, we will continue to analyze it and provide additional resources at a later date. Check with your advisor for additional information.