IRS Provides Guidance on Involuntary Termination for Purposes of COBRA Subsidy
The American Rescue Plan Act provides that the federal government will provide a 100% subsidy for monthly COBRA premiums for the six-month period beginning April 1, 2021, and ending September 30, 2021. The subsidy is only available for participants that lost coverage because of involuntary termination or a reduction in hours. The legislation, however, failed to provide further information on what is considered an “involuntary” termination.
The IRS recently released Issues Notice 2021-31, which clarifies that requirement. The guidance describes an involuntary termination as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”
The guidance stressed that a determination of whether a termination is involuntary is based on the facts and circumstances of each case. For example, if an employee resigns but the facts and circumstances indicate that the employer would have terminated the employee if the employee did not resign, the termination is considered involuntary. A termination is also involuntary if an employee initiates the termination, but does so for good reason due to the employer’s action that results in a material negative change in the employment relationship (for example, because the employer materially reduced hours).
The IRS also noted that an employer may rely on an individual’s attestation that a termination is involuntary, as long as the employer does not have actual knowledge that the attestation is incorrect.