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Additional IRS Q&As on American Rescue Plan’s COBRA Subsidy

On July 26, 2021, the IRS issued Notice 2021-46, providing additional guidance on the application of the American Rescue Plan Act (ARPA) subsidy for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) in the form of 11 questions and answers. The Notice expands on prior guidance issued on May 18, 2021.

Specifically, the focus of the additional guidance provides additional clarity on who claims the tax credit. The questions addressed include:

  • Subsidy availability to individuals eligible for an extension who had not elected it;
  • Whether subsidies for vision or dental-only coverage ends due to eligibility for other coverage that does not include vision or dental benefits; 
  • Subsidy availability under a state statute that limits continuation coverage to government employees;
  • Whether employers may claim the tax credit if the Small Business Health Options Program (SHOP) Exchange requires employers to pay COBRA premiums; and
  • Which party may claim the tax credit in situations involving parties other than an insurer or former common law employer providing the COBRA coverage.

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