Employers and the American Rescue Plan Act of 2021 (ARPA)
The recently enacted American Rescue Plan Act of 2021 (ARPA) is an economic stimulus bill that will inject $1.9 trillion into the American economy to accelerate the recovery from the economic downturn and health emergency caused by the COVID-19 pandemic. Of special interest to employers, the ARPA in a number of respects expands legislation enacted in 2020 to address the COVID-19 crisis, such as the CARES Act and Families First Coronavirus Response Act (FFCRA).
Perhaps the most publicized aspect of the ARPA is the direct $1,400 stimulus checks to individuals. However, other aspects of the ARPA are more directly of interest to employers.
Non-Mandated Extension of FFCRA-Related Tax Credits
Employers are not required to, but may voluntarily provide to employees Emergency Paid Sick Leave and Emergency Family and Medical Leave that previously had been mandated under the FFCRA. This program will terminate on September 30, 2021. This means employers may grant leave under the FFCRA to employees with eligible leave remaining and continue to receive the corresponding tax credits for those leave payments until that date. Otherwise, this program would have expired on March 31, 2021. While the emergency leave extensions under the ARPA are voluntary, employers should also consider any state or local leave requirements. Under the new legislation:
- Employers who provide up to an additional 10 days of leave to employees would be eligible for a tax credit. The employer can claim the tax credit even if the employer had previously claimed a credit for paid leave used by the same employee prior to April 1, 2021.
- In addition to the reasons for leave for which tax credits were originally available (see our prior blog), tax credits now are available for employees who take leave to (1) obtain immunization related to COVID-19 or recover from immunization-related illness; or (2) seek or await the results of a COVID-19 diagnostic test or medical diagnosis, provided the employee has been exposed to COVID-19 or the employer has requested the test or diagnosis.
- Employers may claim tax credits for emergency FMLA leave arising from any of the reasons set forth in the FFCRA as now supplemented by the ARPA. Previously, such credits were available only when the employee was unable to work in order to care for a child whose school or place of care had been closed or was unavailable due to the COVID-19 emergency. Now, employers may claim tax credits for emergency FMLA leave arising from any of the reasons set forth in the FFCRA (including the two new reasons described above). In addition, the ARPA has eliminated the two-week waiting period for emergency FMLA leave and has increased the aggregate cap on leave from $10,000 to $12,000.
- New anti-discrimination rules disallow tax credits to employers who, when providing voluntarily FFCRA leave, discriminate (1) in favor of highly compensated employees (see Section 414(q) of the Internal Revenue Code); (2) in favor of full-time employees; or (3) on the basis of tenure.
We will provide updates when the Department of Labor issues regulations and guidance covering these changes.
Extended Employee Retention Tax Credits
Under the ARPA, the Employee Retention Tax Credit program has been extended from June 30, 2021 to December 31, 2021. Originally, the program provided a refundable tax credit for employers experiencing either (1) the full or partial suspension of the operations of their trades or businesses during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19; or (2) significant declines in gross receipts. The program provided a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer paid to employees after March 12, 2020 and before January 1, 2021. Employers could take advantage of the credit by reducing employment tax deposits otherwise required and could obtain an advance payment from the IRS if the employer’s employment tax deposits were not sufficient to cover the credit.
Under the ARPA extension, qualifying employers will be able to claim up to $7,000 per employee per quarter for each quarter of 2021. In addition, qualifying start-up businesses are now eligible to claim these credits, but limited to $50,000 per quarter.
Under COBRA, former employees generally may elect to participate in their employer’s healthcare plans if they pay 102 percent of the monthly premium. The ARPA provides a subsidy to cover 100 percent of the cost of the premiums for the period from April 1, 2021 to September 30, 2021 for employees who were laid off or involuntarily terminated or had their hours reduced. Under the ARPA, individuals who had previously declined COBRA coverage or who had discontinued their COBRA coverage may now elect coverage provided their COBRA coverage window (either 18 or 36 months from their qualifying event) has not closed, and coverage cannot extend beyond the original coverage window. The ARPA extends the subsidy to continuation coverage under state “mini-COBRA” programs.
Under the ARPA, employers pay the coverage premiums or cover the cost of coverage if their plans are self-insured. In either case, employers will be able to recover the cost of coverage through a payroll tax credit.
Individuals eligible for subsidized coverage must be notified by May 31, 2021. The notification requirements are detailed, but, fortunately, the Department of Labor has issued model notices, which can be found at the Department’s website.
For additional details on how this program operates, see here.
Paycheck Protection Program
The Act added an additional $7.25 billion for the Paycheck Protection Program (PPP) authorized by the CARES Act. The PPP funds forgivable loans for certain qualified employers (generally with fewer than 500 employees) to maintain certain workforce levels.
If you have any questions regarding this blog, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.