The American Rescue Plan Act (ARPA) added to the credits allowable for COBRA premiums. Previously, employers could only claim the credits via the Employee Retention Credit (ERC) option under the CARES Act. Since the ERC has limits on the allocable expenses that can be claimed, employers may be able to get tax credits for the entire amount they've paid for COBRA coverage. ARPA allows credit for 100% of eligible expenses as follows:
- The credit is applied against the employer portion of Social Security taxes.
- Any excess credit (eligible credit amount beyond the employer’s Social Security liability for the quarter) is then refundable.
- Similar to other credits, this credit can be advanced via form 7200. (Note that Zenefits does not currently support this and customers are encouraged not to use form 7200).
- The credit can be applied against federal 941 tax deposits for the quarter in which the credit is claimed via form 941.
- Employers can claim the credit under the ERC or COBRA subsidy, but not both.
- The credit is effective for payrolls with a check date on or after April 1, 2021.