Excuse the obvious platitude, but the last 15 months have been challenging for everyone, especially those that have felt the sting of unemployment. Fortunately, there has been a huge effort from both the private and public sectors to combat those hardships. On the legislative side, those efforts have largely come in the form of new tax credits.
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Anyone who’s ever been between jobs can tell you how difficult it can be to apply for health care benefits under the Consolidated Omnibus Budget Reconciliation Act, or COBRA. COBRA gives workers and their families that lose their health benefits the right to continue group benefits provided by their health plan for limited periods of time under certain circumstances. These circumstances include divorce, death of the primary plan subscriber, and of course, a voluntary or involuntary job loss.
The problem is that COBRA benefits are often prohibitively expensive for the former employee, particularly if they’re providing coverage for a family. Under the current circumstances, that’s a big problem. Despite the fact that COVID seems to be in retreat across the country, there is still an ongoing health emergency; no one wants to be shut out from health care if they can afford it.
And that’s just what this provision seeks to do: Allow Americans who lost their jobs a way to afford coverage.
Under the latest relief bill, employers must provide financial assistance to their former employees (assuming they are assistance-eligible individuals under the bill) to help pay for COBRA health premiums from April 1, 2021, through Sept. 30, 2021 (unless the employee becomes eligible for another group health plan or reaches the end of the maximum COBRA continuation coverage period). The benefit to the employee is obvious: They receive much-needed relief providing health care for themselves and their families. And even better, these payments are excluded from the individual’s income, so it will ultimately be tax-free when they file their 2021 returns.
And there are some advantages for employers too. To incentivize employers to make that initial payment to their former employees, the relief bill provides a payroll tax credit. That gives employers the ability to help their former employees without taking a financial hit that they cannot afford. Like other COVID-19-related payroll tax credits, the COBRA premium subsidy credit may be advanced to the employer by filing Form 7200.
It’s a provision that needs to be on every tax professional’s radar. For those who represent individuals, keeping them informed of this option could remove a critical barrier for people and families who might otherwise have gone without health care coverage. For those who are advising businesses, this provision could offer a welcome opportunity to soften the blow of unplanned layoffs while providing tax benefits along the way.
Everyone wants to be part of a work culture that values its people, and by seeking out every provision in the relief bill to keep their former employees healthy and safe, businesses can show their people that they truly care about their wellbeing. That’s something that could be beneficial, especially as the job market improves, and talent acquisition once again becomes a priority. People have long memories when it comes to how they were treated during a difficult time. Chances are, employees who feel an employer went the extra mile for them won’t forget.
The COVID era has impacted us all, but as we inch closer toward normality, there are ways to help bridge the gap for those struggling the most. And while there probably won’t be a standing ovation at any baseball games for the tax pros who help their clients on this path, the stakes are still high. This is a provision that can make a big difference.
