American Rescue Plan Act Analysis
The American Rescue Pan Act (ARPA), the 1.9 trillion relief act passed by Congress and signed into law on March 11, 2021 contains many COVID-19 relief and stimulus measures. The following are provisions most relevant for small- to mid-sized businesses and their affected employees dealing with the ongoing workplace disruptions related to the pandemic.
Please note, we have prepared this briefing from the perspective of HR professionals. We are not attorneys or accountants. Accordingly, we strongly encourage you to consult with your legal or financial advisors before making business decisions based on the following analysis.
Most Relevant to Businesses
EMERGENCY PAID SICK LEAVE (EPSL) and EMERGENCY PAID FAMILY LEAVE (EPFL)
The ARPA extends and modifies paid time off benefits instituted under the Families First Coronavirus Relief Act (FFCRA). In 2020, FFCRA established two forms of federally subsidized paid leave for businesses with fewer than 500 employees – Emergency Paid Sick Leave and Emergency Paid Family Leave. The original FFCRA expired on December 31, 2020 and was extended under the Pandemic Relief Package on a voluntary basis through March 31, 2021. ARPA modified both the FFCRA and the Pandemic Relief Package in the following ways:
Emergency Paid Sick Leave (EPSL) – FFCRA required employers to provide 80 hours of paid sick leave (up to $511 per day or $5,110 in total per individual) for those out of work due to a test, diagnosis or treatment for COVID-19, for those under a mandated quarantine leave, and up to 2/3 pay (up to $200 per day or $2,000 in total per individual) for those with family members affected by COVID-19 or with children whose school or daycare provider closed. The following changes are made under ARPA:
- Extends the voluntary EPSL and offsetting federal tax credits through September 30, 2021.
- Restarts the EPSL bank of sick leave, giving employees a new 2-week / 10-day / 80-hour allotment of paid sick time to use even if they used or exhausted paid sick leave from April 1, 2020 through March 31, 2021. Any days taken prior to April 1, 2021 will not count toward the new covered period nor does unused time prior to April 1, 2021 carryover into the next coverage period.
Emergency Paid Family Leave (EPFL) – FFCRA required employers to provide job protections and partial pay for those unable to work because of a child’s school or daycare closure. The first two weeks of EPFL were unpaid and the remaining 10 weeks of EPFL covered 2/3 of pay (up to $200 per day or $10,000 in total per individual). The following changes are made under ARPA:
- Extends the voluntary EPFL and offsetting federal tax credits through September 30 2021.
- Modifies EPFL family leave to provide pay (up to $200/day) for the first 2 weeks which was previously unpaid. The new EPFL provides 12 weeks of paid family leave (instead of the previous 10 weeks) thereby increasing the maximum benefit from $10,000 to $12,000 per individual.
- Note: It is unclear at this time if EPFL leave bank is restarted effective April 1, 2021 like EPSL. At this point, our interpretation is that there is no new allotment of leave beyond the original 12 weeks provided under FFCRA in 2020. We will continue to research this and follow up once there is clarity and consistent guidance to provide.
- Expanded the reasons that leave can be provided as EPFL to include all of the reasons that EPSL can be used, including where an employee is subject to a quarantine or isolation order, was told to self-quarantine by a healthcare provider due to COVID-19, is experiencing symptoms of COVID-19 and is seeking a medical diagnosis, is caring for an individual who is subject to a quarantine or isolation order or has been advised to self-quarantine, and where an employee’s son or daughter’s school or place of child care is closed due to COVID-19. In addition, ARPA adds new categories for eligible reasons for EPFL time to include time absent from work due to:
- the employee is seeking or waiting for results for a COVID-19 test or diagnosis
- the employee is recovering from an illness,
- the employee getting a COVID-19 vaccination, and
- the employee recovering from side effects of receiving the COVID-19 vaccination.
ARPA also requires employers to be consistent when offering either EPSL or EPFL paid time off – if paid leave is offered to one employee or group, it should be offered to all employees. Any employer that favors certain employees such as full-time or highly-compensated employees may jeopardize their chance to get offsetting tax credits.
- Note: Favoring certain groups may also open exposure to discrimination charges if the uncovered groups are in groups protected by federal, state, or local law.
The ARPA mandates that, from April 1 to September 30, 2021, covered employers (those with 20 or more employees who offer medical coverage and are subject to COBRA) must provide a 100% COBRA subsidy to any employee who loses employer-covered health care coverage due to an involuntarily termination or involuntary reduction in hours. Employers must also offer a new COBRA enrollment period beginning April 1, 2021 for employees who previously declined or dropped COBRA coverage and are still within their maximum COBRA coverage period.
- Employers with 20 or more employees and subject to COBRA are covered and must provide notification to covered employees and former employees.
- Covered employers must provide 100% subsidy of premiums for employees and their COBRA-eligible dependents and spouses who are involuntarily terminated or have their work hours involuntarily reduced.
- Covered employers must also offer COBRA and provide the corresponding 100% subsidy to former employees who either previously declined or dropped coverage.
- Employers are not required to (but may) offer this subsidy to employees or spouses/dependents of employees who:
- voluntarily resign
- are terminated for gross misconduct (Note: employers denying COBRA coverage should consult their legal counsel first to ensure compliance), and
- whose maximum COBRA coverage period expired on or before April 1, 2021
- The COBRA subsidy includes employer-sponsored group health plans including medical, dental, vision, health reimbursement accounts (HRA’s), as well as other covered plans such as some EAPs, wellness programs, and on-site medical clinics.
- The qualifying 100% subsidy must be provided April 1 through September 30, 2021 or until the employee’s maximum COBRA coverage period expires.
- Employers will be reimbursed for payment of COBRA subsidies through quarterly tax credits against the employer’s Medicare hospital insurance taxes.
- Subsidies are excludable from the employee’s gross wages and will preclude those individuals from claiming an advance premium tax credit under the Affordable Care Act (ACA).
EMPLOYEE RETENTION CREDIT
ARPA extended and modified the Employee Retention Credit (ERC) established in the Coronavirus Aid, Relief and Economic Security Act (CARES Act), passed in March 2020. The ARPA:
- Extends the covered period from June 30 to December 31, 2021.
- Allows employers who have experienced a significant decline in gross receipts to claim a payroll tax credit up to 70% of qualified wages up to $10,000 per employee per calendar quarter.
- Changes the method of refund for the last 2 calendar quarters of 2021.
- Under CARES, the ERC was credited against employers’ share of Social Security tax (6.2% of wages). Going forward, the ERC will be credited against the employer’s share of Medicare tax (or 1.45% of wages).
- Any additional credit may be applied as an advance payment.
- Maintains that employers with more than 500 employees can claim for qualifying wages (including certain health plan expenses) paid to employees who are not working due to the reasons they are filing for ERC.
- Modifies the definition of qualified wages for employers with 500 or fewer employees to include all wages paid during a period of full or partial suspension of operations due to certain COVID-19-related governmental orders or the calendar quarter for which the gross receipts test was met.
- Extends eligibility to:
- Employers who started businesses after February 15, 2020 and have average annual gross receipts of less than $1 million looking back over the last 3 years. The maximum credit a startup business can claim is $50,000 per calendar quarter.
- “Severely financially distressed employers” including employers who have experienced a decline of more than 90% in quarterly receipts, measured in a year-over-year basis from 2019 to 2021. These employers, small or large, can treat any wages paid as qualified wages whether or not its employees are actually working.
- Expands the statute of limitations from 3 to 5 years, allowing the IRS more time to audit these claimed credits.
- Provides that employers who received a PPP loan can still claim an ERC tax credit as long as the wages paid with the PPP loan are not those covered by the ERC.
- Clarifies that wages taken into account and associated with a second PPP loan, grant for shuttered venue operators, or restaurant revitalization grant are not eligible for the ERC.
Most Relevant to Employees
The Act provides the following payments and benefits to individuals:
- Stimulus payments of $1,400 per individual and eligible dependent for tax filers with an income of $75,000 ($150,000 for joint filers) to phase out for individuals with an income up to $80,000 ($160,000 for joint filers).
- Dependent payments will include all eligible dependents including students under 24 and adult dependents, unlike the previous limitation that a dependent has to 17 or younger.
- Provides an additional federal $300 unemployment payment per week on top of state benefits through September 6, 2021.
- Makes initial $10,200 of unemployment benefits nontaxable for households with income levels up to $150,000.
- Tax credits: Expands and modifies certain tax credits such as Child Tax Credit, Earned Income Tax Credit, and Dependent Care Credit for eligible filers.
- Provides assistance for premium payments for certain health insurance coverage, including COBRA for those who lose employer-sponsored health coverage.
- Provides funding for food and nutritional programs such as SNAP.
- Provides funding for childcare and programs for older Americans and their families.
- Provides funding for mental health and substance-use disorder services due to increase in need during pandemic.
- Extends emergency rental assistance, homeowner assistance, and other housing programs.
COVID-19 Related Funding
Finally, ARPA provides funding to organizations, programs, governments, and initiatives impacted by the coronavirus pandemic. Specifically, ARPA allocates:
- $415 billion to fund the national vaccination program, COVID-19 testing contact tracing, scientific research and development, and manufacturing of pandemic-related medical supplies.
- $360 billion to fund the economic relief programs run by state, local, and territorial governments to assist households, small businesses, nonprofits, and critical industries as well as to provide premium payments to essential employees or grants to employees, to provide government services affected by revenue reduction, and to invest in infrastructure such as water, sewer, and broadband internet.
- $20 billion to fund public transportation.
- $176 billion to fund education such as assisting K-12 schools to reopen as well as funds for higher education.
Affinity HR Group will continue to monitor significant laws and initiatives related to the coronavirus pandemic and their impact on businesses. Our Affinity HR Support Plan monitors federal, state, and local legislation in addition to providing HR resources and support. For coronavirus-related workplace questions, don’t hesitate to contact us at 877-660-6400 or [email protected]. We continue to offer our COVID-Support Hour and encourage you to check out our other blog posts for more COVID-related support.