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IRS Issues Long-Awaited ARPA COBRA Subsidy Guidance

Executive Summary

The IRS has issued much-anticipated guidance clarifying certain aspects of the American Rescue Plan Act of 2021 (ARPA) COBRA subsidy provisions.  The guidance comes on the heels of prior ARPA COBRA subsidy guidance from the DOL that included model notices.

The full guidance is available here:

Key Points:

  • The DOL model ARPA COBRA subsidy notices are now available. This includes the extended election period form due May 31, 2021 to those already enrolled in COBRA and eligible for the subsidy, and those who would be eligible for the subsidy if they had elected and/or maintained COBRA.
  • The IRS guidance defines “involuntary termination of employment” for purposes of the ARPA COBRA subsidy as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”
  • Employers may require that employees provide a self-certification or attestation regarding whether they qualify for the COBRA subsidy. Employers can rely on an individual’s attestations unless the employer has actual knowledge that the individual’s attestation is incorrect.
  • The premium assistance credit to cover the cost of providing the subsidized COBRA is in most cases claimed by the employer on the quarterly Form 941 employment tax return for both fully insured and self-insured health plans. Employers must retain records to substantiate eligibility for the credit and provide such documentation to the IRS upon request.
  • The credit for a quarter is the amount equal to the total amount of premiums not paid by the ARPA COBRA subsidy-eligible individuals based on the premium charged for COBRA under the same plan option for the same tier of coverage to individuals not eligible for the subsidy. It also includes the 2% administrative fee (i.e., 102% of the applicable premium).  Where the employer subsidizes COBRA, the amount of the premium assistance credit does not include any amount of the subsidy that the employer would have otherwise provided.

ARPA COBRA Subsidy Overview 

Included among the many pandemic relief provisions in massive $1.9 trillion ARPA is a COBRA subsidy structure that fully subsidizes COBRA to employees and family members losing group health plan coverage due to an involuntary termination of employment or a reduction in hours.  The subsidy period begins April 1, 2021 and runs through September 30, 2021.

Employees and other qualified beneficiaries who experience a COBRA qualifying event caused by an involuntary termination of employment (i.e., not including a voluntary termination of employment) or reduction in hours are eligible for the subsidies provided they elect COBRA coverage for some or all of the period from April 1, 2021 through September 30, 2021.

The full ARPA subsidy leaves no balance payable by the employee or other qualified beneficiary.  In other words, the applicable COBRA premium is $0.  The ARPA COBRA subsidies apply to all group health plan benefits subject to COBRA, other than the health FSA.

Previous DOL Guidance and Model Notices 

The DOL previously issued model notices for employers and COBRA administrators.

While the DOL FAQ guidance largely deferred the most pertinent outstanding questions to the newly released IRS guidance, it did provide a helpful outline of the COBRA subsidy notice distribution requirements.

They apply as follows:

Model ARPA General Notice and COBRA Continuation Coverage Election Notice

This notice is for use by group health plans for any COBRA qualified beneficiaries who have qualifying events occurring from April 1, 2021 through September 30, 2021.  That includes all qualifying events—regardless of whether the COBRA subsidy will apply.

The notice must also include the separate Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 form.  This document informs employees of the COBRA subsidy eligibility rules, and it directs qualified beneficiaries to request they be treated as eligible for the subsidy by confirming whether they qualify.

The plan must provide both the notice and the additional summary document under the standard COBRA timeframes, which requires the plan to provide the COBRA election notice to individuals who experience a COBRA qualifying event within 44 days from the loss of coverage.  These rules generally provide 30 days for the employer to provide notice to the plan administrator, and 14 days for the plan administrator to provide the election notice to the qualified beneficiary, which the DOL generally enforces as a combined 44-day limit.

Failure to timely provide the COBRA notice could result in excise tax penalties of $100 for each day late, or $200 per day if there is more than one qualified beneficiary for that qualifying event.

Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods

This notice is for use by group health plans for qualified beneficiaries who:

  • Are currently enrolled in COBRA and eligible for subsidies (i.e., their loss of coverage was caused by a reduction in hours or involuntary termination of employment); and
  • Would be eligible for COBRA subsidies if they had elected and/or maintained COBRA (i.e., individuals who had previously not elected COBRA coverage, or who dropped COBRA coverage, but are still within the 18-month maximum coverage period).

The additional election period does not extend the (in most cases) 18-month maximum coverage period, so the notice will generally apply for applicable COBRA qualifying events on or after October 2019.  Individuals can begin their coverage prospectively from the date of their election, or, if an individual has a qualifying event on or before April 1, choose to start their coverage as of April 1—even if the individual receive an election notice and makes the COBRA election at a later date.

The notice must also include the separate Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 form.  This document informs employees of the COBRA subsidy eligibility rules, and it directs qualified beneficiaries to request they be treated as eligible for the subsidy by confirming whether they qualify.

The plan must provide both the notice and the additional summary document by May 31, 2021 to all those who qualify.  Individuals will use the summary document to request the subsidy.  Those who are not currently enrolled in COBRA will also use the election form included with the notice to enroll in COBRA.  These individuals have 60 days from the date of receiving notice of this extended election period to make the COBRA election and return the summary document requesting the subsidy.

  • Important Notice: The Outbreak Period does not extend the deadline for ARPA notices/elections.

Notice of Expiration of Period of Premium Assistance

This notice is for use by group health plans to provide to individuals who are losing their ARPA COBRA subsidies.

The COBRA subsidy period can last from April 1, 2021 through September 30, 2021.  However, it will end earlier if:

  • The individual becomes eligible for another major medical group health plan or Medicare; or
  • The individual reaches the end of the COBRA maximum coverage period (generally 18 months).

This notice is for use upon the end of the COBRA subsidy period or, if earlier, the end of the individual’s maximum coverage period.  It is not applicable where the individual loses the subsidy as a result of eligibility for other major medical group health plan coverage or Medicare.

The plan must provide the notice 15 – 45 days before the individual’s premium assistance expires.  For those receiving the COBRA subsidy through the end of September, that requires distribution between August 16 and September 15.

  • Important Notice: The Outbreak Period does not extend the deadline for ARPA notices/elections.

New IRS COBRA ARPA Subsidy Guidance

The new IRS guidance addresses a multitude of key topics that have been at the forefront of employers’ concern since ARPA’s passage in early March.

Most of guidance is in Q/A format, spanning an impressive 86 questions and answers over 41 pages!  Suffice to say, the guidance is very comprehensive.  The following is a high-level overview of some of the key takeaways from each section of the notice.

Eligibility for COBRA Premium Assistance (Q/A-1 – Q/A-20, Pages 6-13)

  • Employers may require that employees provide a self-certification or attestation regarding whether they qualify for the COBRA subsidy. That means the burden of determining whether the employee lost coverage as the result of a reduction of hours or involuntary termination of employment can be placed on the employee.  This structure is already built into the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 model form put out by the DOL.
  • The self-certification or attestation can also be relied upon by employers for purposes of determining whether the individual is eligible for other group health plan coverage or Medicare, would make the individual ineligible for the subsidies.
  • For purposes of receiving the tax credit to cover the employer’s cost of providing the subsidized COBRA, employers can rely on the individual’s attestations unless the employer has actual knowledge that the individual’s attestation is incorrect.
  • Employers relying on the attestation must keep a record of the individual’s attestation regarding eligibility for the subsidy. Employers can also rely on other evidence, such as records concerning a reduction in hours or involuntary termination of employment.
  • Any qualifying event other than a reduction in hours or involuntary termination of employment does not qualify for the subsidy. For example, qualifying events triggered by divorce, a child aging out, or death are not subsidy-eligible.
  • Individuals who are not a COBRA qualified beneficiary cannot be eligible for the COBRA subsidy. Domestic partners therefore do not qualify for the subsidy because they do not qualify as a spouse, and therefore are not a qualified beneficiary.  See our prior post for more details: COBRA for Domestic Partners.

 Reduction in Hours (Q/A-21 – Q/A-23, Pages 13-14)

  • A COBRA qualifying event triggered by a reduction in hours is subsidy-eligible regardless of whether the reduction in hours was voluntary or involuntary. The involuntary requirement applies only to loss of coverage caused by termination of employment.
  • COBRA subsidies are available where the reduction in hours triggering event for the loss of coverage was a furlough.

Involuntary Termination of Employment (Q/A-24 – Q/A-34, Pages 14-17)

  • The guidance defines “involuntary termination of employment” for purposes of the ARPA COBRA subsidy as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”
  • An employee-initiated termination of employment is an involuntary termination of employment if the employee terminated for good reason due to employer action that resulted in a material negative change in the employment relationship for the employee.
  • Retirement is generally not an involuntary termination of employment. However, if the employee had knowledge that the employer would have terminated the employee absent the retirement, and the employee was willing and able to continue employment, the retirement is an involuntary termination of employment.
  • Resignation as the result of a material change in the geographic location of employment for the employee is an involuntary termination.
  • An employee’s termination of employment due to general concerns about workplace safety (e.g., concerns about exposure to Covid-19 because of the employee’s or family member’s health condition) is not an involuntary termination of employment. However, the termination of employment is involuntary if the employee can demonstrate that the employer’s actions or inactions resulted in a material change in the employment relationship.
  • An employee’s termination of employment because a child is unable to attend school or access childcare due to Covid-19 is not an involuntary termination of employment. Note, however, that a voluntary reduction in hours to address childcare that causes the reduction of hours would be a subsidy-eligible qualifying event.
  • An employee-initiated termination of employment in response to an involuntary material reduction in hours is an involuntary termination of employment.
  • An employer’s decision not to renew an employee’s contract is an involuntary termination of employment where the employee was otherwise willing and able to continue working under a similar new contract or without a contract. However, if the parties understood at the time they entered into the contract (and at all points during the course of the contract) that the contract would not be renewed, the completion of the contract without it being renewed is not an involuntary termination of employment.

 Coverage Eligible for COBRA Premium Assistance (Q/A-35 – Q/A-42, Pages 17-20)

  • The ARPA COBRA subsidies are available for all group health plan coverage other than a health FSA.
  • This means vision, dental, and HRA coverage are all subject to the subsidy. Although not addressed in the guidance, this would also include other group health plan benefits such as an EAP.
  • If an employer no longer offers the health plan that previously covered the subsidy-eligible individual, the individual must be offered the opportunity to elect the plan that a similarly situated active employee would have been offered that is most similar to the previous plan that covered the individual.

Beginning of the COBRA Premium Assistance Period (Q/A-43 – Q/A-46, Pages 20-22)

  • Individuals eligible for the ARPA COBRA subsidy under the extended election period (i.e., those who previously declined or dropped COBRA, but are still within the 18-month maximum coverage period) may waive COBRA continuation coverage for any period before electing to receive COBRA subsidies, including retroactive periods of coverage beginning prior to April 1, 2021.

End of the COBRA Premium Assistance Period (Q/A-47 – Q/A-50, Pages 22-23)

  • Individuals will lose the ARPA COBRA subsidy as of the earliest of 1) the date the individual becomes eligible for other group medical coverage or Medicare, 2) the date the individual loses eligibility for COBRA, or 3) the end of the last period of coverage beginning on or before September 30, 2021.
  • After the end of September, COBRA continues automatically and the standard 30-day grace period to make timely payment will apply, subject to the Outbreak Period
  • An individual who fails to provide notice of loss of eligibility for the ARPA COBRA subsidy (e.g., because of eligibility for another employer group health plan), may be subject to a federal tax penalty of $250. The penalty will not apply if the failure was due to reasonable cause and not to willful neglect.  If the failure is fraudulent, the penalty will be the greater of $250 or 110% of the subsidy received. 

Extended Election Period (Q/A-51 – Q/A-55, Pages 23-25)

  • The spouse and dependents of subsidy-eligible employees who elected self-only COBRA before April 1, 2021 may elect to enroll in subsidized COBRA under the extended election period described in more detail above.
  • Subsidy-eligible individuals who previously elected only certain lines of COBRA coverage available to them have the right to enroll in the other lines as part of the extended election period. For example, an employee who elected COBRA only for dental or vision coverage can elect to enroll in medical coverage as part of the extended election period.

Extensions Under the Emergency Relief Notices (Q/A-56 – Q/A-59, Pages 25-27)

  • The Outbreak Period extensions do not apply to the employer’s May 31, 2021 deadline to provide the extended election period notice or the subsidy-eligible individual’s 60-day election period upon receiving the extended election period notice.
  • If a subsidy-eligible individual elects COBRA retroactive to a period before April 1, 2021, the employer may require the individual to pay the premiums for that period of COBRA coverage prior to the subsidy taking effect. Such pre-4/1/21 COBRA coverage payments would remain subject to the standard Outbreak Period extension rules.

Comparable State Continuation Coverage (Q/A-61 – Q/A-62, Pages 25-26)

  • State mini-COBRA programs such as Cal-COBRA that provide coverage comparable to federal COBRA are subject to the ARPA COBRA subsidy.
  • Mini-COBRA programs that offer a different maximum coverage period (e.g., 36 months for Cal-COBRA), qualifying events, qualified beneficiaries, or maximum premiums do not fail to be comparable coverage because of those differences.
  • The extended election period is not available for state mini-COBRA programs unless the state law or program provides for a similar extended election right. (Q/A-52)
  • The employer is not eligible to take the premium assistance tax credit directly even if it pays the full premium to the insurer in a mini-COBRA arrangement. The insurance carrier receives the credit.

Calculation of COBRA Premium Assistance Credit (Q/A-63 – Q/A-70, Pages 28-33)

  • The credit for a quarter is the amount equal to the total amount of premiums not paid by the ARPA COBRA subsidy-eligible individuals receiving the ARPA COBRA subsidy in that quarter. This is based on the premium charged for COBRA under the same plan option for the same tier of coverage to individuals not eligible for the subsidy.  It also includes the 2% administrative fee (i.e., 102% of the applicable premium).
  • Where the employer subsidizes COBRA, the amount of the premium assistance credit does not include any amount of the subsidy that the employer would have otherwise provided. For example, if the employer subsidizes $800 of a $1,000 COBRA premium for three months during the ARPA COBRA subsidy period as a severance benefit, the credit is available to the employer is $2,000 for each of those three months.  The employer is eligible for the full credit ($1,000/month) for any subsequent months in which the employee receives the full ARPA COBRA subsidy.
  • There is no credit available for any months in which the employer fully subsidizes the COBRA premium as part of a severance benefit (or otherwise). The employer is eligible for the full credit for any months after the employer subsidy ends in which the employee receives the ARPA COBRA subsidy.
  • Separate taxable severance benefits do not affect the credit. Employers sponsoring a self-insured health plan frequently provide assistance in the form of standard taxable compensation intended to cover all or a portion of the cost of COBRA (rather than a direct COBRA subsidy) to avoid §105(h) nondiscrimination issues.  For more details, see our prior post: Employer COBRA Subsidies and Reimbursement.
  • For an ICHRA, the credit is limited to 102% of the amount actually reimbursed with respect to an ARPA COBRA subsidy-eligible individual. For more details on the challenges presented by COBRA’s application to ICHRAs, see our 2021 ABD ICHRA for Employers Guide.

Claiming the COBRA Premium Assistance Credit (Q/A-71 – Q/A-86, Pages 33-40)

  • The premium assistance credit is claimed by the “premium payee”. In general, the employer maintaining the plan claims the credit as the premium payee for both fully insured and self-insured health plans.
  • The main exception is the insurance carrier will claim the credit as the premium payee for a fully insured group health plan where the employer is not subject to federal COBRA, and the plan is subject to state mini-COBRA (such as Cal-COBRA). This exception would apply where the employer employed fewer than 20 employees (including fractional part-time employees) on at least 50% of its typical business days in the preceding calendar year.  For more details, see our prior post: The COBRA Small Employer Exception.
  • For multiemployer plans, the plan itself claims the credit as the premium payee.
  • As of the date the employer receives the ARPA subsidy-eligible individual’s COBRA election, the employer becomes entitled to the premium assistance credit for premiums not paid by the individual that began before that date and each subsequent period of coverage (typically a month) that the individual does not pay the premium by reason of the ARPA subsidy.
  • The employer claims the premium assistance credit by reporting the credit and the number of individuals receiving the subsidy on the designated lines of the quarterly Form 941 employment tax return.
  • Employers may request an advance of the amount of the anticipated credit that exceeds the federal employment tax (the FICA payroll tax) deposits available by filing Form 7200. The Form 7200 may be filed after the end of the payroll period in which the employer became entitled to the credit.  Deposits may not be reduced, and advances may not be requested, for a credit for a period of coverage that had not begun.
  • If individuals fail to provide notice that they are no longer eligible for COBRA premium assistance due to eligibility for other disqualifying group health plan coverage or Medicare, the employer is still entitled to the credit received for that period of ineligibility unless the employer knew of the individual’s eligibility for the other coverage. An employer that learns of an individual’s eligibility for other coverage is not entitled to the credit from that point forward.
  • The premium assistance credit is gross income to the employer. The employer’s gross income is increased by the amount of the credit for the taxable year which includes the last day of any quarter with respect to which the credit is allowed.
  • Employers must retain records to substantiate eligibility for the credit and provide such documentation to the IRS upon request. This includes documentation that the individuals were eligible for the ARPA COBRA subsidy, such as the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 form describe above that is completed by the individual.  Employers will be liable for employment taxes that are due as a result of any improper claim of the credit.

Brian Gilmore

About the author

Brian Gilmore

Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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