Additional COBRA Subsidy Guidance: IRS Notice 2021-46

New guidance from IRS Notice 2021-46 (Notice) provides additional clarity on some miscellaneous requirements of the American Rescue Plan Act of 2021 regarding premium assistance for COBRA (Subsidy). See Notice 2021-46.

Who is eligible for the Subsidy and for how long?

The Notice establishes that the Subsidy is available to assistance eligible individuals (AEIs) whose original qualifying event was a reduction in hours or involuntary termination of employment, and who subsequently receive an extension of the 18-month COBRA continuation period due to a disability determination or second qualifying event when the extension falls during the April 30 to September 30, 2021 Subsidy period (Period). This rule applies even if the individual did not give notice to elect extended COBRA before the start of the Period.

When does the Subsidy end? How does Medicare fit in?

The Notice clarifies that an AEI ceases to be eligible for the Subsidy when he or she becomes eligible for other group health coverage, even if the scope of such coverage is less than the individual had under COBRA.

The Notice illustrates this with an example of eligibility for Medicare:

  • An AEI who elects dental or vision-only COBRA coverage will lose eligibility for premium assistance for dental or vision-only COBRA upon becoming eligible for Medicare, even though Medicare does not provide dental or vision coverage.

Who claims the tax credit?

The Notice emphasizes that in the case of federal COBRA, the common-law employer is most-often entitled to claim the tax credit for premium assistance.


  • If a plan is subject to both federal and state COBRA requirements, the common law employer is entitled to the credits (as opposed to the insurance company, which would be eligible if only the state requirements applied.)

Plans other than a multiemployer plan(i.e., a collectively bargained plan) covering multiple employers under common control:

  • each common law employer that is a member of the controlled group is entitled to claim the Subsidy credit with respect to its employees or former employees.

A plan (other than a multiemployer plan) covering unrelated employers (i.e., a MEWA):

  • each employer in the MEWA is entitled the credit with respect to its own employees or former employees.

Employers that use a third-party, such as a PEO, will need to pay close attention to the details of the arrangement. The PEO may claim the credit only if it is a third-party payor that:

  • (i) maintains the group health plan,
  • (ii) is considered the sponsor and plan administrator of the group health plan (e.g., it performs the duties of a plan administrator with respect to COBRA administration); and
  • (iii) normally receives the COBRA premium payments directly from qualified beneficiaries.

The Notice clarifies that a third-party payor is one that pays wages subject to Federal employment taxes and reports those wages and taxes on an aggregate employment tax return that it files on behalf of its client(s).  If the PEO is not a third-party payor of the employees’ wages, it will not qualify for the credit.


An exception to the common law employer rule occurs if a state agency subject to federal COBRA provides coverage to various other state and local agencies, and qualified beneficiaries would normally submit premiums to the agency that maintains the plan. In this case, the agency maintaining the plan is entitled to claim the credit.

What if our company is in the middle of a merger or acquisition?

There are complicated rules that govern the COBRA obligations of buyers and sellers in a business reorganization such as a merger or acquisition (M&A).  The Notice explains that where the selling group remains obligated to make COBRA continuation coverage available to M&A qualified beneficiaries, the entity in the selling group that maintains the group health plan is entitled to claim the COBRA premium assistance credit.

Leave a Reply

Your email address will not be published. Required fields are marked *