Earlier this month, the IRS released an updated version of Form 941 (“Employer’s Quarterly Federal Tax Return”), with associated revised instructions, to include fields for taking a tax credit for the American Rescue Plan Act (ARPA) COBRA subsidies.
Employers who offer group health plan coverage subject to federal COBRA (i.e., most employers with 20 or more employees) and who have assistance eligible individuals (AEIs) elect the COBRA subsidy during the period of April – September 2021, may claim a payroll tax credit for up to the full amount that they would otherwise charge for COBRA coverage, including the 2% administrative charge. The credit is fully refundable–employers can receive a payment from the IRS if their credit exceeds their Medicare obligations in a calendar quarter.
Employers become entitled to the credit as of the date an AEI elects COBRA coverage, and they may claim a credit for premiums not paid by an AEI for any period of subsidized coverage that began before that date. For example, if on June 17, an AEI retroactively elects COBRA as of April 1, the employer is entitled to credit as of June 17, for premiums not paid by the AEI for coverage for April through June.
The credit will generally be claimed by using new line items 11e, 11f and 13f on the revised Form 941. The revised Form 941 instructions also provide “Worksheet 5,” a form that employers can use to determine their ARPA tax credit. Credits may be claimed on returns for the second, third or fourth quarter of 2021.
The upcoming deadline for the second quarter Form 941 filing is August 2, 2021. This will be the first period for which employers can claim ARPA tax credits for COBRA subsidies provided between April 1, 2021 through June 30, 2021.
For more background information on the ARPA COBRA subsidy, see our prior E-Alerts here and here. In addition, detailed Q&A information can be found in IRS Notice 2021-31, with specific guidance for calculating and claiming the COBRA premium assistance credit beginning with Q&A #63.
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