Payroll Tax Credit
How are employers and plans reimbursed for the premium subsidy amount?
Most employers will be reimbursed for the premium subsidy by a new tax credit that applies against the employer’s share of the Medicare hospital insurance tax. The credit is a dollar-for-dollar reimbursement of the COBRA premiums for AEIs that were waived pursuant to the ARPA subsidy. To the extent that the credit amount exceeds the employer’s Medicare hospital insurance payroll tax, the excess amount may be claimed as a tax credit. ARPA also includes a provision indicating the credit may be advanced, pursuant to forms and instructions to be developed by the IRS.
The tax credit is available only to the person to whom premiums are payable. For most plans, this means the employer. For multiemployer plans, the person to whom the premium is payable is the plan. Employers requesting the credit may not also claim a credit on the same amount that is taken into account as qualified wages under the CARES Act or as a qualified health expense under the Families First Coronavirus Response Act or paid family leave acts under Sections 3131 and 3132 of the Internal Revenue Code.
Is the premium subsidy considered taxable income to an AEI?
No. A premium subsidy provided to an AEI is not considered taxable income.
Most employers will be reimbursed for the premium subsidy by a new tax credit that applies against the employer’s share of the Medicare hospital insurance tax. The credit is a dollar-for-dollar reimbursement of the COBRA premiums for AEIs that were waived pursuant to the ARPA subsidy. To the extent that the credit amount exceeds the employer’s Medicare hospital insurance payroll tax, the excess amount may be claimed as a tax credit. ARPA also includes a provision indicating the credit may be advanced, pursuant to forms and instructions to be developed by the IRS.
The tax credit is available only to the person to whom premiums are payable. For most plans, this means the employer. For multiemployer plans, the person to whom the premium is payable is the plan. Employers requesting the credit may not also claim a credit on the same amount that is taken into account as qualified wages under the CARES Act or as a qualified health expense under the Families First Coronavirus Response Act or paid family leave acts under Sections 3131 and 3132 of the Internal Revenue Code.
Is the premium subsidy considered taxable income to an AEI?
No. A premium subsidy provided to an AEI is not considered taxable income.