On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law. In addition to providing a third round of stimulus to individuals, ARPA contains several provisions that are of particular importance to employers. These provisions include extensions and changes to both the Employee Retention Credit (ERC) and Families First Coronavirus Response Act (FFCRA) Paid Sick and Family Leave Credit, introduces temporary COBRA and ACA subsidies, and increases contribution limits to dependent care FSAs.
The Checkwriters Compliance Team has included summaries of each of these provisions below; however, for full details on ARPA please click here.
Employee Retention Credit (ERC) extended
The Employee Retention Credit (ERC) was created through prior COVID-19 relief legislation (the CARES Act) and was set to expire June 30, 2021. ARPA extends the ERC through December 2021. The credit remains 70% of up to $10,000 in qualified wages per employee per quarter, with a $28,000 maximum credit per employee for 2021. ARPA modifies several components of the ERC:
- Extends the ERC to new businesses begun after February 15, 2020. These new businesses must have annual receipts of under $1 million; the amount of the credit cannot exceed $50,000 per quarter.
- Relaxes previous restrictions on “Severely Financially Distressed Employers.” These employers must demonstrate that gross receipts are less than 10% of gross receipts of the corresponding base period. They can then apply the ERC to all wages paid to employees up to the applicable $10,000 per employee per quarter limit.
- It is also important to note that after June 30, 2021, the credit applies against the employer’s Medicare hospital insurance (HI) taxes rather than Social Security Old Age, Survivor’s and Disability Insurance (OASDI) taxes. The credit remains refundable for employers with insufficient tax liability.
Families First Coronavirus Response Act (FFCRA) Paid Sick and Family Leave Credit
Prior COVID-19 relief legislation (the FFCRA) created a payroll tax credit for employers to help defray the costs of previously required paid sick leave and paid family leave. ARPA extends these Sick and Family Leave credits through September 30, 2021. While the requirement for covered employers to offer paid FFCRA leave expired last year, that leave is funded by the government up to applicable limits for covered employers that offer it.
The previous 10-day limitation for paid sick leave applies, while the previous wage limit for paid family leave payments is increased from $10,000 per employee to $12,000 per employee.
The Act also adds new reasons employees can take leave (and reasons employers can take the credit):
- Time awaiting results of a COVID-19 test.
- Time obtaining a COVID-19 vaccine.
- Time recovering from the negative health impact of a COVID-19 vaccine.
NOTE: Employers cannot take the credit for payroll costs subject to PPP loan forgiveness.
ARPA includes a 100% COBRA subsidy for qualified employees and dependents who lose coverage because of involuntary termination or reduction in hours. In addition, qualified individuals who had previously not elected COBRA have the option to now elect COBRA, as long as the individual is still within their COBRA maximum period. The subsidy is effective for coverage periods beginning April through September 2021.
Employers are reimbursed through a refundable payroll tax credit; this credit may be advanced by the IRS to the employer (further guidance is expected).
NOTE: Employers cannot use same wages as those used for ERC or FFCRA paid sick and family leave credit.
ACA premium subsidies are increased through 2022, in effect decreasing the required individual contribution. ARPA provides a 100% subsidy for ACA coverage to those either unemployed or earning up to 150% of the federal poverty level (FPL) for two years (individuals earning below 150% of the FPL must currently pay up to four percent of their income).
ARPA also expands ACA subsidies for people with income over 400% of the FPL who were previously ineligible. Premium costs are now capped at 8.5% of income. Individuals who receive unemployment insurance at any time in 2021 will be able to obtain ACA coverage at no cost.
Dependent Care FSA contribution limits increased
The contribution limit for employer provided dependent-care FSAs (DC-FSAs) is increased from $5,000 to $10,500 (or from $2,500 to $5,250 for married filing separately) for 2021.
For employees to take advantage, employers would need to amend their cafeteria or DC-FSA. These amendments can be retroactive if adopted no later than December 31, 2021.
Disclaimer: The information contained herein is not intended to be construed as legal advice, nor should it be relied on as such. Employers should closely monitor the rules and regulations specific to their jurisdiction(s) and should seek advice from counsel relative to their rights and responsibilities.