Cobra Continuation Coverage Requirements

<div class="Section1"><em>Editor&rsquo;s Note: See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id=""></a> for a discussion of the special rules that were enacted in 2020 in response to the COVID-19 pandemic.<div class="Section1"><br /> <br /> A plan may require a qualified beneficiary to pay a premium for continuation coverage. The premium generally cannot exceed a percentage of the applicable premium.<br /> <br /> The applicable premium is the plan&rsquo;s cost for similarly situated beneficiaries ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="367">367</a>) with respect to whom a qualifying event has not occurred. The applicable premium for each determination period must be fixed by the plan before the determination period begins. A determination period is defined as any 12 month period selected by the plan, provided that it is applied consistently from one year to the next. Because the determination period is a single period for any benefit package, each qualified beneficiary will not have a separate determination period.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Except as provided under ARRA 2009 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="356">356</a>), the percentage of the applicable premium that may be charged is generally 102 percent. In the case of a disabled qualified beneficiary, the premium may be as much as 150 percent of the applicable premium for any month after the 18&nbsp;month of continuation coverage. A plan may require payment equal to 150 percent of the applicable premium if a disabled qualified beneficiary experiences a second qualifying event during the disability extension period, after the 18 month. The 150 percent amount may be charged until the end of the 36 month maximum period of coverage, that is, from the beginning of the 19 month through the end of the 36th month. A plan that does so will not fail to comply with the nondiscrimination requirements of IRC Section&nbsp;9802(b).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Coverage may not be conditioned on evidence of insurability and cannot be contingent on an employee&rsquo;s reimbursement of his or her employer for group health plan premiums paid during a leave taken under the Family and Medical Leave Act of 1993.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> During a determination period, a plan may increase the cost of the COBRA coverage only if the plan has previously charged less than the maximum amount permitted and even after the increase the maximum amount will not be exceeded or a qualified beneficiary changes his or her coverage. If a plan allows similarly situated active employees to change their coverage, each qualified beneficiary must be given the same opportunity.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> A qualified beneficiary must be permitted to make premium payments on at least a monthly basis. Any person or entity may make the required payment for COBRA continuation coverage on behalf of a qualified beneficiary.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> COBRA premiums must be paid in a timely fashion, which is defined as 45 days after the date of election for the period between a qualifying event and an election, and 30 days after the first date of the period for all other periods.<a href="#_ftn6" name="_ftnref6">⁶</a> An employer may retroactively terminate COBRA continuation coverage if the initial premium is not timely paid. In <em>Harris v. United Automobile Insurance Group, Inc.</em>,<a href="#_ftn7" name="_ftnref7">⁷</a> the 11th Circuit Court of Appeals ruled that the additional time provided in Treasury Regulation Section&nbsp;54.4980B-8, A-5, applies only to those plans that are fully funded, that is, that involve an agreement with an insurance company to provide benefits. Because the health plan in <em>Harris</em> was funded and sponsored by the company (so that it was self-funded), the IRS regulation did not apply. Consequently, the time for submitting the taxpayer&rsquo;s premium payment was not extended beyond that provided by the plan. Accordingly, the company was within its right in terminating the taxpayer&rsquo;s coverage.<br /> <br /> In effect, the <em>Harris</em> court ruled that the employer did not have an &ldquo;arrangement&rdquo; under which it was given a certain period of time to pay for the coverage of non-COBRA beneficiaries. The additional time frame provided in the regulation applies only to those plans that are fully-funded, meaning those that involve an agreement with an insurance company to provide benefits.<br /> <br /> An employer is not required to set off the premium amount against the amount of a claim incurred during the 60 day election period but before the election was made.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> A plan must treat a timely payment that is not significantly less than the required amount as full payment, unless the plan notifies the qualified beneficiary of the amount of the deficiency and grants a reasonable period for payment. A reasonable period of time for this purpose is<br /> 30 days after the date when notice is provided. An amount will be considered as not significantly less if the shortfall is no greater than the lesser of $50 or 10 percent of the required amount.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> Revenue Ruling 96-8 provides some guidance in the area of determining COBRA costs.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> <em>See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="369">369</a> for a discussion of the Health Coverage Tax Credit.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 54.4980B-8, A-2(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 4980B(f)(2)(C); Treas. Reg. &sect; 54.4980B-8, A-1.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect; 4980B(f)(2)(D); Treas. Reg. &sect; 54.4980B-10, A-5; Notice 94-103, 1994-2 CB 569.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 54.4980B-8, A-2(b).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 54.4980B-8, A-3, A-5.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 54.4980B-8, A-5.<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Harris v. United Automobile Insurance Group, Inc</em>., 579 F.3d 1227 (11th Cir. 2009).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Goletto v. W. H. Braum Inc.</em>, 25 EBC 1974 (10th Cir. 2001).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect; 54.4980B-8, A-5(b).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp; Rev. Rul. 96-8, 1996-1 CB 286.<br /> <br /> </div></div><br />

<div class="Section1">If an eligible individual was enrolled in the monthly HCTC program during the tax year, they were sent a Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments. This form was provided because the HCTC Program made monthly payment(s) to the individual’s health plan administrator in one or months in the tax year.</div><br /> <div class="Section1"><br /> <br /> Boxes 3 through 14, on Form 1099-H, reflect the tax credit amount the individual received for each month in (an 80 percent tax credit for payments made by the HCTC Program in<br /> January and February and a 65 percent tax credit for payments made in March through December).<br /> <br /> To claim the additional 7.5 percent retroactive credit:<br /> <ol><br /> <li>Refer to the box to the left of box 8 on Form 1099-H. This is the additional<br /> 7.5 percent retroactive credit that the HCTC Program has calculated. If the amount listed is $0.00, there is no retroactive credit amount.</li><br /> <li>Complete and file Form 8885, Health Coverage Tax Credit, with Form 1040, U.S. Individual Income Tax Return. Enter the retroactive tax credit amount on line<br /> 7 of Form 8885, Health Coverage Tax Credit. It is not necessary to complete lines 1 through 6 and it is not necessary to submit any supporting documentation.</li><br /> </ol><br /> Note: If a credit is claimed for any month for which a payment was made directly to a qualified health plan, lines 1 through 6 must be completed for those months. Then, the additional 7.5 percent retroactive credit amount is added to the sum of any amount on Part II, line 6, of Form 8885 and the total is entered on Part II, line 7. All required supporting documentation must be submitted and copies should be retained.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Form 8885 must be filed along with Form 1040.<br /> <br /> <hr /><br /> <br /> </div>

<div class="Section1">If a covered employee’s employment is terminated for gross misconduct, no COBRA continuation coverage is available to the employee or to the employee’s qualified beneficiaries.<a href="#_ftn1" name="_ftnref1">¹</a> If an employer fails to notify an employee at the time of the employee’s termination that the termination is on account of gross misconduct, its ability to deny COBRA coverage may be undermined.<a href="#_ftn2" name="_ftnref2">²</a></div><br /> <div class="Section1"><br /> <br /> The fact that an employer has grounds to terminate an employee for gross misconduct does not support a denial of COBRA coverage if the employee voluntarily resigns to avoid being fired. An allegation of gross misconduct after a voluntary termination cannot be used to evade liability where an employer has not properly processed a COBRA election and the carrier refuses to extend coverage.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> The Seventh Circuit Court of Appeals decided that it is not sufficient that an employer believed, in good faith, that an employee had engaged in gross misconduct. The district court had held that the proper test is not whether an employee actually engaged in gross misconduct but whether the employer believed in good faith that the employee had. The appeals court held that COBRA requires more than a good faith belief by an employer and that an employee should have been given the chance to demonstrate that the employer was mistaken and thus obtain COBRA rights.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> An insurance carrier is bound by an employer’s determination and cannot decline COBRA coverage merely because the employer might have been entitled to terminate the employee on grounds of gross misconduct.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <p style="text-align: center;"><strong>Case Law Examples</strong></p><br /> The term “gross misconduct” is not specifically defined in COBRA or in regulations under COBRA. Therefore, whether a terminated employee has engaged in “gross misconduct” that will justify a plan not offering COBRA to that former employee and family members will depend on the specific facts and circumstances. Generally, it can be assumed that being fired for most ordinary reasons, such as excessive absences, or generally poor performance, does not amount to “gross misconduct.”<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> The IRS has announced that it will not issue rulings on whether an action constitutes gross misconduct for COBRA purposes.<a href="#_ftn7" name="_ftnref7">⁷</a> For these reasons, the concept of gross misconduct has been developed through case law.<br /> <br /> Some courts have provided a standard by which conduct can be judged, finding that conduct is gross misconduct if it is so outrageous that it shocks the conscience;<a href="#_ftn8" name="_ftnref8">⁸</a> that gross misconduct may be intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer’s interest;<a href="#_ftn9" name="_ftnref9">⁹</a> or that gross misconduct is conduct evincing such willful or wanton disregard of an employer’s interests as is found in deliberate violation or disregard of standards of behavior which the employer has the right to expect of his or her employee.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> Some more specific examples follow.<br /> <br /> Mere incompetence is not gross misconduct.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> One court has held that breach of a company confidence did not constitute “gross misconduct.”<a href="#_ftn12" name="_ftnref12">¹²</a><br /> <br /> An employee did not engage in gross misconduct by falsifying mileage reports, failing to attend mandatory meetings, and receiving an unsolicited offer of employment.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <br /> Under a state law definition of gross misconduct, an employee who admitted stealing an employer’s merchandise was considered to have been terminated for gross misconduct and, thus, was not entitled to COBRA continuation coverage.<a href="#_ftn14" name="_ftnref14">¹⁴</a><br /> <br /> Cash handling irregularities, invoice irregularities, and the failure to improve the performance of one of an employer’s stores was held to be gross misconduct.<a href="#_ftn15" name="_ftnref15">¹⁵</a><br /> <br /> In a case where a court concluded that Congress left the definition of gross misconduct up to employers, two employees who had been terminated for refusing to comply with directions of a supervisor were considered to have been terminated for gross misconduct.<a href="#_ftn16" name="_ftnref16">¹⁶</a><br /> <br /> A bank employee who cashed a fellow employee’s check knowing there were insufficient funds to satisfy it and held the check in her cash drawer until the check could be covered was held to have been terminated for gross misconduct.<a href="#_ftn17" name="_ftnref17">¹⁷</a><br /> <br /> A bank employee’s violation of a bank’s corporate credit card policy and blatant misrepresentation concerning a small loan application to a federal agency constituted gross misconduct.<a href="#_ftn18" name="_ftnref18">¹⁸</a><br /> <br /> In some cases, conduct was egregious. One court held that a security guard who “deserted his post … and was found asleep at his residence” and falsified records, creating a fictional guard to collect another paycheck, was terminated for gross misconduct.<a href="#_ftn19" name="_ftnref19">¹⁹</a><br /> <br /> Throwing an apple at a co-worker and uttering racial slurs was found to be gross misconduct.<a href="#_ftn20" name="_ftnref20">²⁰</a><br /> <br /> Misconduct need not take place on the job to constitute gross misconduct. Off-duty behavior also may eliminate an employee’s right to elect COBRA coverage. Gross misconduct was found where an employee assaulted a subordinate with whom the employee was having a romantic relationship while away from the workplace.<a href="#_ftn21" name="_ftnref21">²¹</a><br /> <br /> Having an accident while driving a company vehicle under the influence of alcohol and on company business constituted gross misconduct, even though it was a misdemeanor offense under state law.<a href="#_ftn22" name="_ftnref22">²²</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 4980B(f)(3)(B); ERISA § 603(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     <em>Mlsna v. Unitel Com., Inc.</em>, 91 F.3d 876 (7th Cir. 1996).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     <em>Conery v. Bath Assoc</em>., 803 F. Supp. 1388 (N.D. Ind. 1992).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     <em>Kariotis v. Navistar Int’l Transp. Corp</em>., 131 F.3d 672 (7th Cir. 1997).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.     <em>Conery v. Bath Assoc</em>., 803 F. Supp. 1388 (N.D. Ind. 1992).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.     U.S. Department of Labor Health Benefits Advisor Glossary, Office of Compliance Assistance Policy.<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.     Rev. Proc. 2018-3.<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.     <em>Zickafoose v. UBServs. Inc</em>. 23 F. Supp. 2d 652, 654 (S.D.W. Va. 1998).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.     <em>Collins v. Aggreko, Inc</em>. 884 F. Supp. 450, 454 (D. Utah 1995).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.   <em>Paris v. F. Korbel &amp; Btos., Inc</em>., 751 F. Supp. 834, 838 (N.D. Cal. 1990).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.   <em>Mlsna v. Unitel Com., Inc</em>., 91 F.3d 876 (7th Cir. 1996).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.   <em>Paris v. F. Korbel &amp; Bros., Inc</em>., 751 F. Supp. 834 (N.D. Cal. 1990).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>.   <em>Cabral v. The Olsten Corp</em>., 843 F. Supp. 701 (M.D. Fla. 1994).<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>.   <em>Burke v. American Stores Employee Benefit Plan</em>, 818 F. Supp. 1131 (N.D. Ill. 1993).<br /> <br /> <a href="#_ftnref15" name="_ftn15">15</a>.   <em>Avina v. Texas Pig Stands, Inc</em>., 1991 U.S. Dist. LEXIS 13957 (W.D. Tex. 1991).<br /> <br /> <a href="#_ftnref16" name="_ftn16">16</a>.   <em>Bryant v. Food Lion, Inc</em>., 100 F. Supp. 2d 346 (D. S.C. 2000).<br /> <br /> <a href="#_ftnref17" name="_ftn17">17</a>.   <em>Moffitt v. Blue Cross &amp; Blue Shield Miss</em>., 722 F. Supp. 1391 (N.D. Miss. 1989).<br /> <br /> <a href="#_ftnref18" name="_ftn18">18</a>.   <em>Johnson v. Shawmut Nat’l Corp</em>., 1994 U.S. Dist. LEXIS 19437 (D. Mass, 1994).<br /> <br /> <a href="#_ftnref19" name="_ftn19">19</a>.   <em>Adkins v. United Int’l Investigative Servs, Inc</em>., 1992 U.S. Dist. LEXIS 4719 (N.D. Cal. 1992).<br /> <br /> <a href="#_ftnref20" name="_ftn20">20</a>.   <em>Nakisa v. Continental Airlines</em>, 26 EBC 1568 (S.D. Tex. 2001).<br /> <br /> <a href="#_ftnref21" name="_ftn21">21</a>.    <em>Zickafoose v. UB Servs., Inc</em>., 23 F. Supp. 2d 652 (S.D.W.V. 1998).<br /> <br /> <a href="#_ftnref22" name="_ftn22">22</a>.   <em>Collins v. Aggreko, Inc</em>., 884 F. Supp. 450 (D. Utah 1995).<br /> <br /> </div>

<div class="Section1">Under the Trade Act of 2002, certain eligible individuals are entitled to receive a refundable tax credit equal to 72.5 percent (after February 12, 2011 and before January 1, 2014, extended for periods ending before January 1, 2021 by the Further Consolidated Appropriations Act, 2020 (FCAA 2020)) of the cost of certain types of health coverage, including COBRA continuation coverage. Eligible individuals are displaced workers qualifying for assistance under the Trade Adjustment Assistance program and individuals age 55 or older receiving a benefit from the Pension Benefit Guaranty Corporation.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="Section1"><br /> <br /> The Trade Act of 2002 also made the tax credit advanceable and, under the Health Coverage Tax Credit (HCTC) program established by the Treasury Department, eligible individuals receive a qualified health insurance costs credit eligibility certificate.<a href="#_ftn2" name="_ftnref2">²</a> These individuals can pay 20 percent of a required premium to providers along with the certificate, and the government will pay the remaining 80 percent of the premium. The government may make advance payments of the credit for health insurance costs of eligible individuals, but the total amount of these payments made cannot exceed 72.5 (was 65 percent) percent of the amount paid by a taxpayer for a taxable year.<a href="#_ftn3" name="_ftnref3">³</a> Providers are required to file a prescribed information return identifying the individuals receiving subsidized coverage and the amount and timing of the payments. Providers must provide each covered individual with a statement of the information reported for that individual.<a href="#_ftn4" name="_ftnref4">⁴</a> The HCTC program was effective August 1, 2003.<br /> <br /> TAARA 2015 reinstated the HCTC, but also provided new rules to coordinate the HCTC with the premium assistance tax credit. Generally, the rules provide that, beginning in 2016, insurance purchased on the health insurance exchanges does not qualify as coverage for which the HCTC may be claimed. Further, an eligible individual must make an election to have the HCTC apply and is not entitled to the premium assistance tax credit for any months during which an HCTC election is in effect.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 35, as amended by ARRA 2009.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     IRC § 7527, as amended by ARRA 2009.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     IRC § 7527(b).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     IRC § 6050T.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.     Pub. Law No. 114-27, § 407.<br /> <br /> </div>

<div class="Section1"><em>Editor’s Note:</em> In response to COVID-19, the IRS and DOL announced an extension of the 60-day COBRA election window. The 60-day election window was paused for relevant time periods that included March 1, 2020. The clock was stopped and did not resume ticking until the end of the “outbreak period”. The outbreak period is defined as the window of time beginning March 1, 2020 and ending 60 days after the date that the COVID-19 national emergency is declared ended. The 45-day payment clock and 30-day grace period for late COBRA payments were also paused. The outbreak period ended effective May 11, 2023. Pre-pandemic rules once again became effective July 10, 2023.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Under ERISA, the government only has authority to order relevant time periods to be disregarded for one year.<br /> <br /> The IRS, Department of Treasury, HHS and DOL clarified that taxpayers subject to the relief will have the applicable periods disregarded until the earlier of (a) one year from the date they were first eligible for relief or (b) 60 days after the announced end of the national emergency (the end of the outbreak period). On the applicable date, the timeframes for individuals and plans with periods that were previously disregarded resumed. In other words, in no case could a disregarded period exceed one year.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <hr /><br /> <br /> An example can illustrate application of the tolling period. Assume the individual terminated employment on February 20, 2020, beginning the 60-day clock to make a COBRA election. Nine days elapsed between February 20 and March 1, when the clock was paused. If the emergency period had ended June 1, 2020, the clock would begin running 60 days later. When the clock began again, the individual would have 51 remaining days to make a COBRA election.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The American Rescue Plan Act of 2021 (ARPA) provided free COBRA coverage for a six-month period between April 1, 2021 through September 30, 2021 for employees and their family members who lost group health coverage because of involuntary termination or reduced work hours. The COBRA subsidy applied to all employees who lost employer-sponsored health care due to an involuntary loss of work since the COVID-19 pandemic began. Employees who lost coverage as of April 2020 were potentially eligible for the entire six-month subsidy. Those employees’ 18-month COBRA period included the period from April 1 through September 30, 2021. However, individuals who were eligible for other group health coverage or Medicare were not eligible for the subsidy. The subsidy was available to both employees who did not elect COBRA coverage during the original election period and those who initially elected COBRA, but let coverage lapse. These individuals had to be offered an additional 60-day window to elect COBRA coverage and were not required to pay retroactive premiums to the original loss-of-coverage date. Plan administrators were required to begin notifying eligible individuals of the subsidy within 60 days of April 1, 2021.<br /> <br /> Generally, individuals were assistance-eligible individuals (AEIs) during eligibility waiting periods if the period overlapped the subsidy period. For example, the individual was an AEI during periods outside the open enrollment period for a spouse’s employer-sponsored health coverage (though once the individual qualified for the coverage, the subsidy was no longer available).<br /> <br /> Employers who changed health plan options were required to place the AEI in the plan most similar to their pre-termination plan, even if the replacement plan was more expensive (and the 100 percent subsidy continued to apply).<br /> <br /> Importantly, it was possible that employers who were no longer covered by federal COBRA requirements would have been required to advance the subsidy based on past coverage periods (for example, COBRA requirements might cease to apply if the employer terminated employees so that the federal rules no longer applied). If the employer was subject to COBRA when the individual experienced the reduction in hours or involuntary termination, the employer had to offer the subsidy.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> IRS guidance on the ARPA COBRA premium subsidies clarified the definition of “involuntary termination”—and, thus, offered valuable guidance on who qualified for the subsidies. For COBRA subsidy purposes, an employee was involuntarily terminated if the employee was willing and able to continue working, and yet the employer chose to end the employment relationship. However, an employee’s termination is considered voluntary if the employee resigned—even if the employee resigned because the employee could no longer find childcare or because a child’s school was closed. Termination for gross misconduct was also treated as a voluntary termination that disqualified the employee from receiving the subsidy.<br /> <br /> If the employee quit because of concerns about workplace safety, even in response to the employee’s health situation or the health of a household member, the resignation was treated as a voluntary termination unless the employee could show that the employer’s actions with respect to workplace safety created a material negative change in the employment relationship similar to a constructive discharge. The IRS was clear that a facts-and-circumstances analysis would apply to determine whether termination of an employment relationship was involuntary on the employee’s part.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <hr /><br /> <p style="text-align: center;"><strong>Notice Requirements</strong></p><br /> ARPA required employers to notify assistance eligible individuals (AEIs) about the availability of the 100 percent COBRA subsidies and their rights under the new law. The DOL released a series of model notices to be provided under certain situations. The general notice was to be provided within 60 days after a qualifying COBRA event (as is normally the case) for individuals who experienced any qualifying event between April 1, 2021 and September 30, 2021 (including voluntary terminations). Certain employers also had to provide a notice of alternative deadlines for plans subject to state COBRA laws.<br /> <br /> A “Notice of Extended Election Period” was required by May 31, 2021 if the individual had a COBRA qualifying event that caused them to lose federal COBRA coverage because of involuntary termination of employment or reduction in hours between October 1, 2019 and March 31, 2021. Those individuals had a special 60-day window to elect COBRA between April 1, 2021 and September 30, 2021, although the COBRA coverage period could not exceed the coverage period they would have been entitled to receive based on the original qualifying event. Employers should have also attached a “Request for Treatment as an Assistance Eligible Individual” to the three notices above, providing the form for individuals to complete to request premium assistance.<br /> <br /> A “Notice of Expiration of Subsidy Period” was required between 15 and 45 days before the subsidy ended.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> For taxpayers who lost eligibility upon the end of the last overage period beginning on or before September 30, 2021, notice was required between August 16 and September 15, 2021. Model notices were available on the Department of Labor website.<br /> <br /> <hr /><br /> <br /> Failure to provide the notices on time would subject the employer to a $100 per day, per beneficiary penalty (up to a maximum of $200 per family, per day).<br /> <p style="text-align: center;"><strong>Employer Tax Credit.</strong></p><br /> On the date when the AEI provided the employer with a COBRA election, the employer became entitled to a credit for premiums not paid by the AEI for any coverage period that began before that date. In other words, if the AEI retroactively elected coverage as of April 15, 2021 and provided the election notice in June, the employer was entitled to a credit for premiums the AEI did not pay from April 15 through June.<br /> <br /> On the first day of each subsequent coverage period (month), the employer was entitled to a credit for premiums the AEI does not pay that month.<br /> <br /> The employer reported the credit and individuals receiving the credit on Form 941 and was entitled to reduce federal employment tax deposits in anticipation of the credit. Like other COVID-19-related tax credits, if tax deposits were not sufficient to cover the entire credit amount, the employer could file Form 7200 with the IRS to receive advance payment of the credit.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     EBSA Disaster Relief Notice 2021-01.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     <em><em>See</em></em> 85 FR 26351 and EBSA Disaster Relief Notice 2020-01.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     Notice 2021-31.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     Notice 2021-31.<br /> <br /> </div>