July 22, 2021

The Internal Revenue Service issued out guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice 2021-31 provides assistance to employers, plan administrators, and health insurers regarding the new credit available to them because of their providing continuation health coverage to certain individuals under COBRA. The notice also contains information on the calculation credit, how individuals are eligible, the premium assistance period, information vital to employers, plan administrators, and insurers to understand the credit.

The American Rescue Plan allows for a temporary 100% reduction in the premium that individuals would need to pay when they choose COBRA continuation health coverage following a reduction in hours or involuntary termination of employment. The implementation of the new law provides a tax credit along with it for entities that maintain group health plans which includes, employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are accessible for events under comparable state laws which can also be referred to as “mini-COBRA.”

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

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.