The economic effects of the coronavirus (COVID-19) pandemic over the past year have presented several workforce challenges including unfortunate situations when individuals who were involuntarily terminated or had their hours reduced must make difficult decisions regarding the costly continuation of employer-sponsored healthcare via COBRA benefits at a time when they are no longer earning income during the pandemic.
The American Rescue Plan Act of 2021 (Rescue Act) enacted March 11, 2021, contains a particularly helpful provision for such affected individuals, by subsidizing the cost of such continued COBRA benefits—with employers being a significant part of that process. This is reminiscent of the 2009 COBRA subsidies during that economic recovery.
The Rescue Act provides for a 100% COBRA subsidy for up to six months from April 1 through September 30, 2021, for any individual who lost health coverage because of an involuntary termination or involuntary reduction in hours. In addition, the Rescue Act provides these individuals a “second chance” to make their COBRA elections in light of the subsidy, even if they let their coverage lapse.
Employers play a major role in this process because the “subsidy” is technically a tax credit.
Employers providing COBRA-related severance need to consider the impact of the subsidy on such arrangements. In light of the subsidy, it may be that participants will elect COBRA coverage—and this can naturally lead to additional claims that may affect insurance or stop-loss insurance renewals. Many employers rely upon a COBRA administrator and will need to coordinate in advance on the required notices and information necessary to claim the payroll tax credit.
There are some unanswered or open questions for which guidance is needed, such as:
For more information, contact a tax professional with KPMG’s Washington National Tax:
Robert Delgado | +1 (858) 750-7133 | firstname.lastname@example.org
Erinn Madden | +1 (202) 533-3757 | email@example.com
Terri Stecher | +1 (202) 533-4830 | firstname.lastname@example.org
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