IRS COBRA Grant Guide: 11 Points to Remember Mitchell, Williams, Selig, Gates & Woodyard, PLLC
The notice is intended to clarify certain issues related to the COBRA Premium Tax Credit and to explain what requirements apply to employers or plan sponsors, group health plans and / or health insurance issuers.
Here are some key points from the 83 questions and answers:
1. Depending on the specific plan, the employer, the multi-employer plan or the insurer could be entitled to the tax credit.
The person eligible for the tax credit – that is, the “person to whom the premiums are payable” or the “beneficiary of the premium” – is:
- the multi-employer plan, in the case of a group health plan which is a multi-employer plan;
- the employer, in the case of a collective health plan subject to the federal COBRA or under which part or all of the coverage is self-funded;
- the insurer provide coverage, in the case of any other group health plan not described above (typically these will be fully insured plans that are subject to mini-COBRA continuation requirements). See Q / A-73.
2. There are special considerations for single employer insured plans that are subject to federal COBRA.
For a single employer insured plan subject to the federal COBRA, if the insurer and the employer have agreed that the the insurer will directly collect the COBRA premiums, the insurer is obligatory to treat a “person eligible for aid” or “AEI” as having paid the full premium. However, notwithstanding any agreement between the employer and the insurer, the the employer is required to pay the premium to the insurer for months of COBRA premium assistance with respect to any AEI claim coverage. See Q / A-60.
3. Employers who sponsor fully insured plans subject only to the mini-COBRA state are not entitled to a tax credit.
In this case, the “premium beneficiary” is the insurer providing the group health plan coverage, even though the employer pays the entire premium to the insurer. The Treasury Department and IRS have recognized that this requirement may create administrative problems for certain small business health options program exchanges that bundle premiums paid by participating employers or where state rules require full payment of premiums by the employer; the Treasury Department and the IRS continue to look into this issue. See Q / A-62.
4. The tax credit available does not include subsidies from employers.
If an employer does not subsidize the costs of COBRA premiums for qualified beneficiaries in a similar situation, the employer’s tax credit for a quarter is equal to the amount of premiums paid on behalf of AEIs (i.e. do not paid by AEIs) for continuous COBRA coverage for the quarter. If the employer Is subsidize the costs of COBRA premiums, then the tax credit for a quarter is the amount of premiums that the employer would have effectively charged an AEI in the absence of the subsidy. In other words, the tax credit do not include any premium amount that the employer would otherwise have paid. See Q / A-63 and 64.
5. The available tax credit includes administrative costs.
For the purposes of calculating an employer’s tax credit, the amount of the premium includes all administrative costs otherwise allowed (generally 102% of the applicable premium according to IRC § 4980B (f) (4)). See Q / A-64.
6. Beneficiaries of bonuses who are not subject to employment tax are entitled to claim the tax credit.
If the bonus recipient is not subject to employment tax – for example a multi-employer plan – the bonus recipient should claim the tax credit on Form 941 and report any advance payment received in anticipation of the credit on the same Form 941. The premium recipient must enter zero on any remaining non-applicable lines so that the amount of the overpayment on the Form 941 is the amount of the credit reduced by any prepayment received. See Q / A-77.
7. Premium recipients do not need to file a Form 7200 at this time.
The IRS has educated taxpayers do not to file a Form 7200 at this time as it is being updated.
8. Employers who use third-party payers may be eligible for a tax credit.
A premium recipient who uses a third-party payer (for example, PEO, CPEO, or § 3504 agent) to report and pay employment taxes to the IRS may be eligible for the tax credit, but there are different rules. which apply according to the type of third party payment used by the beneficiary of the premium. See Q / A-81 to 84 for specific indications by type of entity.
9. Involuntary layoffs should be carefully considered.
For the purposes of establishing eligibility for the COBRA grant, it is nuanced in determining whether an involuntary termination has occurred. In some circumstances, resignation due to a material change of location, acceptance of severance pay or even early retirement could be considered involuntary terminations. See Q / A-24 to 34 for specific factual scenarios.
ten. Self-certification of eligibility is recommended, but not required.
Employers claiming the tax credit must keep self-certification or other documents on file to substantiate each individual’s eligibility for COBRA bonus assistance. The Ministry of Labor (“DOL”) has published a model “Request for treatment as a person eligible for assistance»That employers can use to determine AEI status and record the employer’s decision and rationale. See Q / A 4 to 7.
11. COBRA premium assistance is available for dental, vision and health care reimbursement arrangements.
As a general rule, COBRA premium assistance is available with regard to any a group health care plan, including a dental only, vision care or health care (“HRA”) reimbursement plan. The exceptions are the IRC § 106 (c) Flexible Health Expense Provisions (“FSA”) proposed under IRC § 125 Cafeteria Plans and Qualified Small Employer Health Plans (“QSHERA”). See Q / A 35 to 40.