- Employers who offer group health plan coverage subject to federal COBRA and have AEIs who elect to take advantage of the COBRA subsidy may be able to claim a credit against the Medicare portion of their payroll
- The credit will generally be claimed using IRS Form 941.
- Employers will need to report the dollar amount of the COBRA subsidies as well as a count of the number of individuals who were provided the COBRA subsidy.
Form 941, the employer’s quarterly federal tax return, has been updated to allow employers to claim a credit for any Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidies provided to assistance eligible individuals (AEIs) in accordance with §9501 of the American Rescue Plan Act of 2021 (ARPA). Detailed information about the COBRA subsidy can be found in Notice 2021-31. Specific guidance for calculating and claiming the COBRA premium assistance credit can be found beginning with Q&A #63.
Form 941 and Premium Tax Credits
Employers who offer group health plan coverage subject to federal COBRA (i.e., most employers with 20 or more employees) and have AEIs who elect to take advantage of the COBRA subsidy during the months of April – September 2021 may be able to claim a credit against the Medicare portion of their payroll taxes. The credit is available to cover COBRA premiums not paid by AEIs so long as the employer had not already promised to subsidize the COBRA premiums (e.g., as part of a severance package).
The credit will generally be claimed using Form 941, Lines 11e, 11f and 13f along with Worksheet 5. Credits may be claimed on returns for the second, third or fourth quarter of 2021. Some employers may be able to claim an advance payment using Form 7200. See Form 7200 and its associated instructions for more information.
Employers will need to report the dollar amount of the COBRA subsidies as well as a count of the number of individuals who were provided the COBRA subsidy. The instructions indicate employers should “count each assistance eligible individual that received assistance as one individual, whether or not the COBRA coverage was for insurance that covered more than one assistance eligible individual. For example, if the coverage was for a former employee, spouse, and two children, you would include one individual.” For employers who use COBRA administrators, the administrators may be able to produce a report to assist employers in claiming the credit.
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EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
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