On March 11, 2021, President Joseph Biden signed The American Rescue Plan Act, which provides $1.9 trillion in funds for individuals and businesses in response to the COVID-19 pandemic. For employers, here are the key provisions to be aware of:
FFCRA tax credit extension
Since January 2021, employers subject to the Families First Coronavirus Response Act (FFCRA) have not been required to provide FFCRA leave to employees; however, employers who opt to voluntarily provide FFCRA leave to employees can obtain tax credits to offset certain costs associated with providing the leave. The American Rescue Plan Act does not reinstate the mandate to provide leave or require employers to provide any additional leave, but extends the tax credits for qualifying family leave and sick leave wages that an employer voluntarily pays between April 1, 2021 and Sept. 30, 2021. The measure provides a new yearly allotment of up to 80 hours per employee of qualifying paid sick leave available for 2021 tax credits. Again, this does not obligate an employer to provide additional leave, but allows employers to offer a new bucket of leave to employees if they so choose.
Additionally, the measure adds three reasons for which an employer can receive tax credits for providing leave to employees.
- Obtaining COVID-19 vaccination;
- Recovering from any injury, disability, illness or condition related to such immunization; or
- Seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19, when such employee has been exposed to COVID-19 or the employer has requested such test or diagnosis.
Beginning on April 1, 2021 and continuing through Sept. 30, 2021, the American Rescue Plan Act will subsidize 100 percent of the cost of premiums for COBRA continuation coverage for an employee or dependent who is a COBRA qualified beneficiary (or will become one) due to an involuntary termination of employment or a reduction of hours. The bill suspends the eligible individual’s obligation to make COBRA premium payments for up to six months.
Under the measure, the employer, insurer or multiemployer plan sponsor must pay eligible employees’ COBRA premiums, but may offset the cost by claiming a new federal tax credit against its quarterly Medicare payroll tax liability. Employers can expect rules to be set out by the Department of the Treasury related to this credit. The credit will be refundable if the subsidy paid exceeds the taxes due. The legislation also includes specific requirements for employers to update their COBRA notices or send a separate notice describing the new subsidies to all eligible individuals. Employers can also expect model notices in the coming weeks.
Employee Retention Tax Credit extension
In March 2020, the Employee Retention Tax Credit was created by the CARES Act. In December 2020, the credit was extended into 2021 by the Taxpayer Certainty and Disaster Tax Relief Act. The American Rescue Act, in turn, extends the credit through the end of 2021. There are different rules for treatment of wages employers:
- Paid from March 12, 2020 through Dec. 31, 2020;
- Pay in the first half of 2021; and
- Pay in the second half of 2021.
Eligibility for the tax benefit is linked to an employer’s size, the impact of the pandemic on an employee’s ability to provide services and the suspension of operations because of government mandates or reductions in quarterly gross receipts. Employers can both receive Paycheck Protection Plan (PPP) loans and claim Employee Retention Tax Credit benefits, but there are limits on “double dipping.” The American Rescue Act also makes the tax credit available to “recovery start-up businesses” that began carrying on a trade or business after Feb. 15, 2020 and that have annual gross receipts of $1 million or less.
Employers should consult with counsel when it comes to voluntary FFCRA leave participation, COBRA notice revision and newly created tax credits under the Rescue Act.