On March 10, 2021, the final version of the American Rescue Plan Act of 2021 was approved by Congress. The American Rescue Plan was signed into law by President Biden on Thursday, March 11, 2021. Below is a summary of the key provisions of the Act impacting employers.
COBRA Continuation Coverage
The Act provides a 100% subsidy of premiums for eligible COBRA recipients, beginning April 1, 2021 through September 30, 2021. The subsidy is no longer available once an individual becomes eligible for coverage under another group health plan or Medicare. It is also only available to employees and/or dependents who became eligible due to the employee’s involuntary termination of employment or reduction in hours and does not apply to employees who voluntarily resigned. Employers can claim a refundable tax credit against their Medicare payroll tax liability for the cost of the premiums.
- Individuals who did not previously elect COBRA or had COBRA, but dropped it prior to April 1, 2021, now have the opportunity to elect COBRA.
- None of the provisions extend the total COBRA continuation period.
- COBRA administrators and employers are currently awaiting final guidance which has not yet been released, but distribution of new/updated COBRA notices to those impacted individuals will be required. The Department of Labor (DOL) has committed to releasing updated guidance by April 10. For EmPower PEO clients who are in our master benefit plans, eligible potential participants will receive updated COBRA notices from our TPA, once final guidance has been provided by the DOL and their documents have been updated to reflect those changes. There is no action needed on your part.
Dependent Care Flexible Spending Accounts
The Act allows employers the option to raise the 2021 contribution limit for Dependent Care Flexible Spending Accounts (FSAs) to $10,500 for single taxpayers and to $5,250 for married individuals filing separately (or single filer). The provision raises the exclusion limits for the plan year beginning after December 31, 2020 and before January 1, 2022.
Extension Of Federal Pandemic Unemployment Assistance
Benefit remains at $300/week through September 6, 2021.
Increases the total number of weeks from 50 weeks to 79 weeks for individuals who don’t qualify for regular benefits.
No changes to eligibility to benefits for individuals who don’t qualify for state unemployment benefits (e.g., self-employed, gig workers, and others in non-traditional employment).
Extension of Pandemic Emergency Unemployment Compensation
Act extends CARES benefits to individuals who exhausted benefits to September 6, 2021 – from 24 weeks to 53 weeks.
Extension Of Emergency Unemployment Relief For Governmental Entities And Nonprofit Organizations
Increases Federal payments to nonprofits and government agencies from 50 percent to 75 percent after March 31, 2021 through September 6, 2021, for the cost of providing unemployment benefits.
The FFCRA Paid Sick And Family Leave And Employer Tax Credits
Extended tax credit period: The tax credits (subject to the below conditions) are now available to covered employers through September 30, 2021.
New leave year for FFCRA paid sick leave: The FFCRA paid sick leave allotment (e.g., 10 days) for which the tax credit can be taken, resets as of April 1, 2021. This means an employer can claim tax credits for FFCRA paid sick leave voluntarily provided to an employee on or after April 1, 2021, even though the employee exhausted FFCRA paid sick leave entitlements prior to March 31, 2021.
New qualifying reasons for FFCRA paid leave: FFCRA paid leave qualifying wages provided by a covered employer to employees for which the tax credit may be taken as of April 1st have been expanded to include the absences below and apply to both paid sick leave and paid family leave.
- The employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis.
- The employee is obtaining a COVID-19 vaccination.
- The employee is recovering from any injury, disability, illness, or condition related to a COVID-19 vaccination.
Expansion of FFCRA paid family leave to include paid sick leave qualifying reasons: Qualifying paid family leave reasons now also include all the qualifying paid sick leave reasons. Previously, only absences for childcare due to COVID-19 school or place of care closure or childcare provider unavailability, qualified for the 10 additional weeks of FFCRA paid family leave beyond the two weeks of FFCRA paid sick leave.
Amount of Paid Leave for Which Tax Credit is Available
Paid sick leave: As noted above, beginning on April 1, 2021, covered employers are eligible to receive tax credits for up to 10 days of paid sick leave for qualifying sick leave reasons. Also as noted above, covered employers’ entitlement to FFCRA paid sick leave tax credits reset as of April 1, 2021. Paid sick leave tax credits are based on an employee’s regular rate of pay and capped at either $511 or $200 per day, depending on the nature of the absence. The $511 daily cap applies for (a) any of the expanded absences described in the “New Qualifying Reasons for FFCRA Paid Leave” section above and (b) the first three covered absences under FFCRA’s original paid sick leave mandate (i.e., absences for the employee’s own needs related to COVID-19). The $200 daily cap applies for all other covered absences under the FFCRA’s original paid sick leave mandate (i.e., absences to care for another individual related to COVID-19).
Paid family leave: An employer also can receive up to a $12,000 tax credit per employee for qualifying FFCRA paid family leave absences. This maximum cap has been increased from its prior ceiling of $10,000 per employee. Additionally, the Act has removed the initial two-week unpaid period of family leave under the FFCRA. The tax credit for qualifying paid family leave wages, which includes covered absences under the FFCRA’s original paid family leave mandate and expanded absences based on the Act (see above), is calculated at 2/3 of the employee’s regular rate of pay, capped at a daily maximum of $200.
Employee Retention Credit
The Act extends the employee retention credit through December 31, 2021. The employee retention credit was originally enacted in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, and it allows eligible employers to claim a credit for paying qualified wages to employees.
Additionally, it expands eligibility for the credit to:
- New startups that were established after Feb. 15, 2020 with gross receipts up to $1 million. The credit is capped at $50,000 per calendar quarter for startups.
- “Severely Financially Distressed Employers” whose revenue declined by 90% compared to the same calendar quarter of the previous year.