On March 11, 2021, President Joe Biden signed into law the American Rescue Plan Act of 2021 (ARPA). The legislation goes into effect April 1, 2021 and contains provisions for a COBRA subsidy and an increase to the annual dependent care FSA contribution limit for 2021.
COBRA Premium Subsidy
The ARPA includes a 100% COBRA premium subsidy for eligible individuals and their family members. Details about the subsidy and criteria are included below.
- The subsidy will cover 100% of the COBRA premiums for employees and family members who are losing group health coverage as a result of an involuntary termination of employment or reduction in work hours.
- The subsidy will begin on April 1, 2021 and end on September 30, 2021.
- Any eligible individual who is enrolled in COBRA or will enroll in COBRA on or after April 1, 2021, and before September 30, 2021, will have the subsidy available to them.
- The subsidy is not available for individuals who voluntarily end employment or become eligible for group health plan coverage elsewhere.
- Employers will receive a credit for the COBRA subsidy through a payroll tax credit against their quarterly taxes.
Action Items for Ameriflex Clients
March 29, 2021 – April 30, 2021: Review COBRA Records – Employer Responsibility
- Ameriflex is unable to determine if a previously-terminated employee was terminated voluntarily or involuntarily without the employer providing and confirming such information. As the custodian of employment records, the employer is responsible for reporting this information accurately; therefore, it is crucial employers review their COBRA records to ensure those employees who were terminated beginning November 1, 2019 to present were marked correctly as involuntary or voluntary.
- Review COBRA records and confirm that individuals who were terminated involuntarily or had a reduction in hours are marked as Termination-Involuntary or Reduction in Hours under Event Type. View instructions for this here.
- If there are any changes that need to be made to an individual’s status in the COBRA system, contact your Client Relationship Team. You can access their contact information in the Ameriflex Employer Portal.
- To ensure all individuals who are eligible for the subsidy receive their notices in the required timeframe, please notify your Client Relationship Team of any changes by April 30.
Action Items for Ameriflex and Department of Labor
April 10, 2021 – Department of Labor Responsibility
- Election model notice will be issued (within 30 days of ARPA enactment date)
May 14, 2021* – May 31, 2021 – Ameriflex Responsibility
- Ameriflex will mail the special COBRA election notice to individuals who have been involuntarily terminated or had a reduction in hours and who are still in their 18-month COBRA coverage period at no additional cost. Qualified Beneficiaries must elect within 60 days of being provided the new election notice. *Date subject to change pending DOL-provided notice.
April, 25, 2021 – Department of Labor Responsibility
- Subsidy Expiration model notice will be issued (within 45 days of ARPA enactment date)
May 31, 2021* – September 15, 2021 – Ameriflex Responsibility
- Ameriflex will mail the Subsidy Expiration Notice to enrolled Qualified Beneficiaries no more than 45 days, and no less than 15 days, prior to the premium subsidy expiration date at no additional cost. *Date subject to change pending DOL-provided notice.
Employers will be able to offset the cost of the COBRA subsidy through a payroll tax credit against the Section 3111(b) Medicare tax. The credit will include the entire COBRA premium, including the 2% administrative fee. More information and guidance on the tax credit procedures will be forthcoming as the IRS and DOL work to determine the exact procedure.
Dependent Care FSA Limit Increase
The legislation also includes a voluntary one year increase to the annual dependent care FSA contribution limit. Employers who want to offer the limit increase to their employees must amend their plan documents.
- For calendar year 2021, the dependent care FSA limit is increased to $10,500 or $5,250 for married individuals filing separately.
- ARPA automatically sunsets this increase at the end of the 2021 calendar year.
- Nondiscrimination Testing: An employer must amend the DCAs by 12/31/2021 if implementing the increase and must administer the plan consistently from the intended effective date through the amendment adoption date. Most DCAs annually fail their Internal Revenue Code nondiscrimination requirements. This may be more likely for 2021, since the ARPA also improves the competing dependent care tax credit. Adopting the increased $10,500 maximum for 2021 may result in larger corrections for highly compensated DCA participant employees. Please click here for additional guidance on how to complete nondiscrimination testing for your DCA plan.
IMPORTANT NOTE for NON-calendar year DCA plans: The total DCA contributions for the calendar year 2021 would need to be monitored by the employer so employees do not contribute more than $10,500 within the 2021 calendar year, even if the plan year overlaps 2021 and 2022. Ameriflex would need to be notified of any contribution changes to the 2022 plan year if the employee has contributed $10,500 for 2021, so employees’ accounts are not overfunded starting 2022 or in 2021. If employers with NON calendar year DCA plans wish to increase the 2021 maximum, employers will strongly want to consider prorated reimbursement limits for expenses incurred during the 2022 portion of the 2021-2022 plan year. The employer will be responsible for ensuring that no employee exceeds the maximum amount for the year as any excess contribution would need to be reported as taxable income. For these reasons, Ameriflex does not recommend NON-calendar year plans adopt this increase since it places additional risk and monitoring by the employer to remain in compliance with the regulations.
We are actively working on the operational procedures to accommodate the ARPA legislative updates and will communicate next steps to our clients and partners soon.
Would the subsidy cover only during the period listed (04/01/2021 to 09/30/2021)
Yes, the subsidy will only be for that time period.
What if an individual has a qualified life event in the middle (Example: 07/01/2021):
They would only have a subsidy for the remaining period (07/01/2021 to 09/30/2021)
Is the COBRA subsidy available to people who declined COBRA before? For example, if I was eligible for COBRA in August of last year and declined, will I get a new notice with the option to re-enroll + the ability to receive the subsidy?
Yes, if a person initially declined COBRA but was still within their election period, they could change their mind and choose to now elect coverage effective 4/1/2021 with the ability to receive the subsidy.