New COBRA premium subsidy guidance available


The IRS has provided guidance in the form of 86 questions and answers (Notice 2021-31) on the temporary COBRA premium assistance required by the American Rescue Plan Act of 2021 (ARPA).

The ARPA provides a COBRA subsidy for certain individuals who experience a loss of group health coverage due to reduced hours or involuntary termination (called “assistance eligible individuals”). The subsidy is available to those individuals who newly qualify as assistance eligible individuals on or after April 1, 2021, as well as those assistance eligible individuals who qualified for COBRA before April 1, 2021, but either did not elect COBRA coverage during their original election period or let their coverage lapse prior to April 1, 2021.

ARPA requires employers who are subject to federal COBRA or state continuation coverage to stop charging assistance eligible individuals for COBRA coverage during the period beginning April 1, 2021, and ending Sept. 30, 2021. Employers can generally recover the cost of the COBRA subsidy through a refundable credit against the employer’s portion of the Medicare Hospital Insurance Tax (i.e., the 1.45% Medicare payroll tax). For further discussion of the subsidy and credit please see our prior alert.

Notice 2021-31 addresses, among other topics:


  • The determination of when a reduction in hours or involuntary termination has occurred for purposes of subsidy eligibility
  • The type of coverage that is eligible for COBRA premium assistance
  • How to determine the beginning and end of the COBRA premium assistance period
  • The extended election period/extensions under the emergency relief notices
  • The calculation of the COBRA premium assistance credit
  • How to claim the credit


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