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Premium Assistance for Cobra Benefits

Employers, or “person to whom premiums are payable”, (premium payees) may be eligible to claim a credit for health care insurance premiums paid on behalf of employees who are eligible for COBRA benefits due to reduced or eliminated hours. 

The premium payee is entitled to credit for premiums not paid by an Assistance Eligible Individual (AEI) by reason of a provision of the “American Rescue Plan Act of 2021” (ARPA section 9501). The payee is eligible for each subsequent coverage period the individual does not pay the premium by reason of ARPA section 9501 regardless of when the premium payee would have required payment.

The premium payee claims the credit on Form 941 by reporting the credit and the number of individuals receiving COBRA premium assistance. A premium payee may reduce the deposit of federal employment taxes, including withheld taxes up to the amount of anticipated credit, and request an advance on the amount anticipated that exceeds deposits by filing a Form 7200.

For a plan with no employees, the credit is claimed on Form 941 by entering zero ($0) on all non-applicable lines so that the overpayment amount is the amount of the credit reduced by any advance payment received.

If you did not claim credit to which you are entitled in previous quarters, you must file Form 941-X to claim the credit.

The premium assistance credit is included in the gross income of any premium payee allowed the credit. The amount of credit is included in income on the last day of any quarter that the credit was allowed.  If you are claiming credits for quarters in a previous tax year for which you have filed your income tax return, you will need to file amended income tax returns as well.

N-2021-31 (irs.gov)

N-2021-46 (irs.gov)

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