IRS Provides Guidance on Premium Assistance and Tax Credit for COBRA Coverage; Updates Form 7200

The Internal Revenue Service (IRS) has provided guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under COBRA while also updating Form 7200 for advance payment of employer credits due to COVID-19.

IRS Notice 2021-31 guides employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA.

The American Rescue Plan provides a temporary 100% reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or involuntary termination of employment. The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available concerning continuation coverage provided for those events under comparable state laws.

Notice 2021-31 provides information regarding the credit calculation, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees. It also covers employee organizations or federal, state, or local governments. State mini-COBRA laws often provide similar benefits for insured small employers not subject to federal COBRA.

Employers, even those with insured coverage, will have to cover the cost of the premium and request a rebate from the federal government. The IRS has also released Form 7200 and its instructions, which provide additional details on how to request the rebate. The IRS will continue to update information related to health plans on IRS.gov. Find more information about Form 7200 here:

• About Form 7200, Advance Payment of Employer Credits Due to COVID-19
• Common errors to avoid when filing for advance payment of employer credits

Contact us with questions about COBRA coverage and completing Form 7200.