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On May 18, 2021, the IRS issued IRS Notice 2021-31 in the form of FAQs, which provides extensive guidance on the COBRA subsidy under the American Rescue Plan Act of 2021 (ARP). Previously, the Department of Labor (DOL), in consultation with the Department of the Treasury and the IRS, issued FAQs written for the benefit of participants and beneficiaries regarding the temporary 100% COBRA subsidy mandated by the ARP. We issued an Advisor containing links to those FAQs as well and to the model notices and forms necessary to implement and administer the COBRA subsidy.
The COBRA subsidy is required to be provided to eligible individuals who experience an involuntary termination of employment or reduction in hours and that have not exhausted the maximum COBRA coverage period as of April 1, 2021. The ARP extends to those individuals an opportunity to make a COBRA election during a special election period that begins on April 1, 2021, and ends on May 31, 2021. The duration of the COBRA subsidy period is six months, ending on September 30, 2021. The IRS guidance was much needed in order to clarify the meaning of involuntary termination, in addition to other issues that remained unresolved after the Agencies’ issuance of the FAQs. This Advisor solely focuses on the meaning of involuntary termination of employment for COBRA subsidy eligibility purposes. We intend to issue subsequent Advisors to cover the other issues addressed in the IRS guidance.
In the Notice, Q&A 24 through 34 apply solely for purposes of determining whether there is an involuntary termination of employment for purposes of the subsidy, but not for any other purposes under the Internal Revenue Code (the Code) or any other law.
Download our full Advisor to learn how the guidance addresses eligibility for the subsidy in the case of:
- Severance from employment
- Termination during employee disability absence
- Retirement
- Termination for cause
- Resignation due to change in location
- Severance window program participation
- Good reason termination
- Voluntary termination due to lack of childcare
- Voluntary termination due to material reduction in hours
- Death of an employee
- Nonrenewal of employment agreement
