President Joe Biden signed the American Rescue Plan Act into law on March 11, 2021. Along with providing financial relief for individuals, state and local governments, schools, businesses and for other purposes, the law contains the following measures of special interest to employers and their employees:
- A subsidy for COBRA premiums, funded through employer tax credits
- Extension of employer tax credits for FFCRA employee leave voluntarily provided through Sept. 30, 2021
- Expansion of employee earnings eligible for the FFCRA tax credit
- Inclusion of testing and immunization as reasons for FFCRA leave
- Extension of $300 increase in weekly unemployment benefits
- Extension of weekly unemployment benefits for workers who otherwise wouldn’t qualify for these benefits
- Expansion of subsidy for ACA premiums
- Increase in DCAP contribution limits
- Extension and expansion of the employee retention tax credit
Action Steps
Employers should review the ARPA’s provisions to identify any requirements and opportunities that apply to them. Employers are also advised to watch for official guidance on the implementation of the law. As more information becomes available, TIG Advisors will keep you informed.
COBRA Subsidy
Beginning April 1st, eligible COBRA participants, will have 100% of their COBRA premiums paid for by their former employer. In turn, affected employers will receive a tax credit against quarterly payroll taxes for any subsidized premiums. If the amount of subsidized premiums exceeds the amount of payroll taxes due, the employer may apply for a refundable tax credit. The subsidy period will end September 30, 2021, or at the time COBRA coverage is exhausted (generally 18 months). The subsidy would also cease for individuals who become eligible under another group health plan or Medicare.
Revised notices will be required to be sent to eligible COBRA participants. The DOL is expected to provide a model notice no later than 30 days after the enactment of the ARPA. Additionally, a notice must be sent informing COBRA participants when the subsidy expires. The DOL is expected to provide a model notice with 45 days of the ARPA’s enactment. Participants who are not entitled to accept the COBRA subsidy but choose to elect coverage will be subject to a $250 penalty or 110% of the COBRA subsidy received.
Eligibility:
- Individuals who previously opted not to enroll in COBRA coverage when eligible.
- Individuals who dropped coverage will have a second chance to receive the subsidized coverage if they are still within their COBRA maximum coverage period (generally 18 months)
FFCRA Leave
The Families First Coronavirus Response Act (FFCRA) passed in March 2020 and provided a tax credit for employers to fund two types of paid employee leave required by the law. These leave requirements expired in December 2020. However, the tax credits were extended through March 31, 2021, for employers that chose to continue to provide FFCRA leave beyond Dec. 31, 2020.
The ARPA extends the FFCRA employer tax credit for voluntarily provided leave through Sept. 30, 2021 and adds employee time off related to COVID-19 testing and immunization as permissible reasons for taking the voluntary leave. It also increases the amount of wages eligible for the family leave credit from $10,000 to $12,000 per employee, and it provides an additional 10 days of voluntary emergency paid sick leave for employees, beginning April 1, 2021.
Unemployment
The ARPA extends three pandemic-related federal unemployment programs that were otherwise scheduled to end in March or April 2021. These include:
- Pandemic Unemployment Assistance, which provides weekly benefits to independent contractors, self-employed individuals and other workers who would typically not be eligible for unemployment benefits.
- Pandemic Emergency Unemployment Compensation, which provides weekly benefits to individuals who have exhausted their eligibility for all other unemployment benefits.
- Federal Pandemic Unemployment Compensation, which provides an additional $300 weekly payment to individuals who are already receiving PUA, PEUC or regular unemployment benefits.
Under the ARPA, all these benefits are now available through Sept. 6, 2021. The ARPA also changes how unemployment benefits received in 2020 are taxed. Specifically, it exempts the first $10,200 from federal income tax for each spouse in households with under $150,000 in adjusted gross income.
Dependent Care Account Limit Increase (DCAP)
For taxable years beginning after Dec. 31, 2020, and before Jan. 1, 2022, the ARPA increases the annual contribution.
Employers with DCAPs can retroactively amend their plans to incorporate this increase, if:
- The amendment is adopted by the last day of the plan year in which it is effective.
- The plan operates consistently with the terms of the amendment until it is adopted.
Employee Retention Tax Credit
- Some small startups that began operating after Feb. 15, 2020, will be eligible for a maximum credit of up to $50,000 per quarter even if they do not experience an eligible decline in gross receipts, or a full or partial suspension.
- A new provision for “severely financially distressed” employers will begin in the third quarter of 2021. The provision will allow employers of any size to count all wages toward the $10,000 cap.
