American Rescue Plan Act COBRA Subsidy

This article provides pertinent updates to the COBRA subsidy based on the American Rescue Plan Act for 2021.

BACKGROUND

The American Rescue Plan Act (ARPA) includes the provision of a COBRA premium assistance tax credit for employers. This legislation provides a subsidy of 100% of COBRA premiums:

  • This starts on April 1 and ends on September 30, 2021.

  • Employers can claim the credit as a refundable payroll tax credit on Form 941 for Quarters 2 and 3 of 2021 until Quarter 1 of 2022.

  • After Q1 2022, claiming the credit will require an Amended Return.

NEXT STEPS

According to the latest guidance from the IRS, clients should pay COBRA premiums for any individuals requiring assistance directly to their insurance provider. The COBRA premium assistance credit is only available for coverage periods starting from April 1, 2021, to Sept. 30, 2021, but some employers still may claim the credit on first-quarter employment tax returns (Form 941) in Q1 2022.

To report COBRA credits for the periods starting from April 1, 2021, to Sept. 30, 2021, follow the instructions below:

  • Submit a case through the Help Community under Payroll > Other.

  • Select the following options when submitting your case in the Help Community:

    • Product Name: Payroll

    • Product Feature: Corrections

    • Function: Amendment

    • Subject: QX 2021 Cobra Credit

  • You will need to also supply the following information:

    • The number of individuals that were provided COBRA premium assistance for the quarter

    • The total amount of COBRA premium assistance provided for the quarter

Upon receipt, Namely will update Form 941-X for the applicable quarterto match your submitted figures, and the IRS will issue a credit based on the 941-X that was filed for the quarter.

FREQUENTLY ASKED QUESTIONS

Where can I go to find out more information regarding this new legislation?

You can read the contents of the bill atCongress.gov

Please see this IRS update for the latest on the COBRA subsidy (published by the IRS on 5/11/21).

Please visit https://www.irs.gov/pub/irs-drop/n-21-46.pdf for additional information and updates on this topic.