Dependent Care Assistance Plan and COBRA Changes

• COBRA Relief – a COBRA premium subsidy for certain assistance eligible individuals (AEIs) beginning April 1. The employer continues to pay the premium and gets reimbursed by the federal government. The eligible period begins on April 1, 2021 and ends September 30, 2021.
  • An AEI is a qualified beneficiary who is eligible for and elects COBRA for a period of coverage within the subsidy period due to a qualifying event of involuntary termination or reduction in hours.
  • Extended Election Period. Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be AEIs is they did, are eligible for the subsidy.
  • The Act also creates a “plan enrollment option”, under which a plan may (but not required to) permit AEIs to elect a different coverage option.
  • The DCAP maximum for 2021 will increase from $5,000 to $10,500 – plans can be amended retroactively for the change so long as the amendment is adopted by the last day of the plan year in which the amendment is effective.
• Temporary changes have also been made to the dependent care tax credit (DCTC) for 2021. The DCTC is refundable and the dollar limit on expenses that can be taken into account is increased from $3,000 to $8,000 for taxpayers with one qualifying individual and from $6,000 to $16,000 for taxpayers with two or more qualifying individuals. Changes have also been made to the child tax credit and earned income tax credit; these credits may be relevant when determining the federal tax savings from participating in a DCAP vs. claiming the DCTC.