On March 11, the American Rescue Plan Act (ARPA) of 2021 was passed and signed into law by President Biden. There are several provisions in the law that could have an impact on employers and specifically on their employees' payrolls.
Employer Paid COBRA Premium Subsidies
Nope, it is not 2009, for those that remember the American Recovery and Reinvestment Act of 2009, which included COBRA subsidized premiums. But it is sure going to feel like it. Workers and their dependents who lost group health coverage involuntarily during the pandemic due to termination or reduction in hours, and would have had COBRA coverage during the Assistance Period (April 1st – September 30th), will now be eligible to receive fully-subsidized coverage for up to six months under the ARPA.
Effective April 1st, employers with 20 or more employees who offer fully-insured, self-insured, multi-employer, or governmental employer’s plans will be required to pay COBRA premiums for involuntarily terminated employees or those with loss of coverage due to reduction in hours. This is a mandatory requirement, but employers will be eligible to receive reimbursement through a federal tax credit or a refund. The IRS is currently generating guidance.
Workers will be provided a new opportunity to elect coverage. Employers will be responsible for issuing model notices by no later than May 31, 2021 to involuntarily terminated employees, making them aware of the subsidy available. Qualified beneficiaries will then have 60-days after the employer provides the notice to elect coverage. Employers will also be responsible for issuing notices to workers when the subsidy is about to expire (no later than 15 days before). The individual loses subsidy eligibility if they exhaust the COBRA maximum coverage period or become eligible for another group health plan or Medicare.
Employers are advised to be proactive and review COBRA qualified beneficiaries to see who might benefit from the subsidy in the six-month eligibility period.
Payroll Tax Credits for Leaves
The Family First Coronavirus Response Act (FFCRA) requirement to provide paid leave for qualified reasons ended on December 31, 2020. The Consolidated Appropriations Action (CAA) passed in December 2020 extended the availability of payroll tax credits through March 31, 2021 for employers who voluntarily provided leave.
The ARPA extends the payroll tax credits once again to employers that voluntarily provide leave from April 1, 2021 to September 30, 2021. It also includes the following new provisions for paid sick leave:
- Additional qualifying reasons for leave
- The employee is obtaining a COVID-19 vaccine.
- The employee is recovering from an injury, disability, or illness related to a COVID-19 vaccine.
- The employee is awaiting the results of a test due to COVID-19 exposure or at the employer’s request.
- A new leave bank for employees (regardless of previous use) of up to 80 hours (pro-rated for part-time employees) of qualifying sick leave for 2021 for those employers choosing to provide it
- A tax credit capped at up to $511 per day
The expanded FMLA includes the following new provisions under the ARPA:
- Increases the tax credits from $10,000 to $12,000 per employee
- Eliminates the 10-day unpaid waiting period
Increased Dependent Care Flexible Spending Accounts
Employers may choose to increase the limits on the Dependent Care Assistance program through their Flexible Spending Account (Section 125 Cafeteria plan). This plan allows employees to use pre-tax salary reduction funds to pay for child and adult care services. Annual limits can be increased for plan year 2021 from $5,000 ($2,500 for married filing separately) to $10,500 ($5,250 for married filing separately). A plan amendment must be filed.
Employee Retention Credits (ERC)
The ARPA extends the ERC program through the end of 2021. The ERC allows employers to take a tax credit of up to 70% or $7,000 (up from $5,000 in 2020) per employee per quarter. A business is eligible for this credit when it has experienced a full or partial shut-down due to government order or has had a decline of 20% in 2021 (50% in 2020) in gross receipts when compared to 2019.
Additionally, while unemployment does not have a direct impact on payroll, it could affect an employer’s future rates and candidate pools. The ARPA provides for up to 53 weeks of Emergency Unemployment Compensation until September 6, 2021. It also provides a $300 supplement for weeks beginning after March 14th and before September 6, 2021. The law exempts the first $10,200 of unemployment benefits paid in 2020 from income taxes for people with income below $150,000.