American Rescue Plan Act
The Act contains many different funding and support programs relevant for employers.
This article has been updated to reflect the enactment of the PPP Extension Act of 2021 on March 30, 2021.
On March 11, 2021, President Biden signed into law H.R. 1319 – the American Rescue Plan Act (the "Act"), which provides approximately $1.9 trillion in further supports and stimulus to individuals, businesses and other organizations, as well as state and local governments affected by the COVID-19 pandemic. Here are selected highlights that may be relevant for employers. The Act contains many different funding and support programs beyond what is described below.
Recovery Rebates to Individuals
The Act authorizes the Internal Revenue Service (IRS) to pay $1,400 to individuals and an additional $1,400 for each dependent of the taxpayer up to specified income limits. These payments are fully phased out for single filers earning $80,000, head of household filers with $120,000 in income, and joint filers making $160,000. Nonresident aliens and those who are a dependent of another taxpayer are not eligible.
Unemployment Insurance Benefits Supplements
The federal unemployment supplement, which was scheduled to expire on March 14th, is renewed with a federal supplement of $300/week through September 6th. The first $10,200 in Unemployment Insurance benefits received in 2020 is now nontaxable for households with under $150,000 in taxable earnings. In the case of a joint return, up to $10,200 in unemployment insurance benefits received by each spouse would be nontaxable. This may affect income tax returns already filed for 2020. The IRS will need to advise taxpayers whether it will be necessary to amend 2020 income tax returns.
Increased Child Tax Credit and Earned Income Tax Credit
The Act increases the Child Tax Credit and the Earned Income Tax Credit. For 2021, the Child Tax Credit is increased from $2,000 to $3,000 per child over age six and $3,600 for each child who is under age six as of the close of the calendar year. These credits are subject to phase-out limits beginning at $75,000 in income for single filers and $150,000 for married filing jointly. The Child Tax Credit is fully refundable for 2021. Children remain eligible through age 17 rather than 16, previously.
The IRS is directed to send periodic (likely monthly) advance Child Tax Credit payments to qualifying families, beginning in July 2021. These payments would represent half of the Child Tax Credit to which a taxpayer is entitled for 2021. The remaining half will be claimed on the 2021 income tax return.
For 2021, the Act expands eligibility requirements and the maximum credit amount for the Earned Income Tax Credit (EITC) for taxpayers without dependents, reducing the minimum age from 25 years of age to 19 years of age. It also increases the upper age limit to include taxpayers over 64 years old. Special age provisions apply to students, qualified former foster youth and qualified homeless youth.
100% COBRA Health Coverage Subsidy
The Act provides a 100% COBRA Subsidy for qualified employees and dependents who lose coverage as a result of involuntary terminations or reductions in hours (qualified individuals). In addition to new qualified employees and dependents, qualified individuals who are still within their COBRA maximum period but who had not previously elected will be given the opportunity to now elect COBRA as well. Employers would pay the COBRA premium and be reimbursed, including the 2% administrative fee that health plans are permitted to charge, via a refundable payroll tax credit. This credit may also be advanced — i.e., paid by the IRS to the employer — although guidance will be necessary to implement this feature. The subsidy would be effective for coverage periods beginning in April through September 2021. The subsidy is only available for so long as the qualified individual is not eligible for other group health plan coverage, is within their COBRA maximum period (typically 18 months from the date of the qualifying event) and/or the end of the subsidy period.
As with other tax credit programs, a "double benefit" is avoided by increasing the taxable income of any organization by the amount of such credit. (The income would be offset by deductible health premium expenses.) Also, no credit is allowed based on the same wages as were used to qualify for the Employee Retention Tax credit or Families First Coronavirus Relief Act (FFCRA) paid leave tax credit.
New notices will be required to advise potential qualified individuals of the availability of COBRA premium assistance for health coverage and the option to enroll in coverage. The Department of Labor, in consultation with the Treasury and Health and Human Services Departments, will publish model notices by April 10, 2021.
Employee Retention Credit Extended Through 2021
The Employee Retention Credit (ERC), which was scheduled to expire on June 30, 2021, is extended through December 2021. The credit percentage remains 70 percent of up to $10,000 in qualified wages per employee per quarter; i.e., a $28,000 maximum credit per employee for 2021. Employers may qualify if their operation is fully or partially suspended due to orders from a governmental authority related to COVID-19, or if the organization can demonstrate that gross receipts for a calendar quarter are less than 80 percent of the gross receipts of the employer for the same calendar quarter in 2019. The credit is increased by the proportionate share of an employer's health costs related to such wages.
The Employee Retention Credit is also extended to new businesses which started after February 15, 2020, with average annual receipts of under $1,000,000. For such businesses, the amount of the credit may not exceed $50,000 per quarter.
The Act relaxes restrictions on "Severely Financially Distressed Employers," defined as those that can demonstrate that gross receipts are less than 10 percent of the gross receipts of the corresponding base period (generally the same calendar quarter in 2019). These organizations may apply the ERC to all wages paid to employees (up to the applicable $10,000 per employee per quarter limit), notwithstanding that they have over 500 employees. Normally employers with more than 500 full-time employees can only take the credit for wages paid to employees for time that the employee is not providing services (i.e., paid time off).
Families First Coronavirus Response Act (FFCRA) Paid Sick and Family Leave Tax Credit Extended
The FFCRA Paid Sick and Family Leave tax credit is extended beginning April 1, 2021through September 30, 2021, and remains refundable and advanceable via IRS Form 7200. The requirement for covered employers to offer paid FFCRA leave expired in 2020, but for covered employers that offer it, such leave is funded by the federal government up to applicable limits. The original FFCRA 10-day limitation for paid sick leave applied from March 2020 through March 2021. The Act resets this limit for qualifying sick leave taken between April 1, 2021 and September 30, 2021.
The Act also adds new reasons for which employees may take paid sick or family leave for which employers are entitled to the tax credit, including leave for time awaiting the results of a test to diagnose COVID-19, to obtain immunization for it, or to recover from any adverse health impacts arising from the immunization. The Act also increases the wage limit for paid family leave payments from $10,000 per employee to $12,000 per employee.
The credit is further expanded to apply to pension contributions and apprenticeship program costs associated with qualifying FFCRA sick or family leave wages. Certain government entities are also now eligible to take FFCRA credits.
Finally, the Act provides that employers cannot "double dip" by taking credit for payroll costs that have been subject to PPP loan forgiveness.
Paycheck Protection Program (PPP) Expansion
Eligibility for Paycheck Protection Program (PPP) loans is expanded to nonprofit 501(c) entities, other than 501(c)(4) lobbying organizations. Recipients remain subject to the limit of $1,000,000 or 15 percent of receipts and activities related to lobbying. Consistent with the Consolidated Appropriations Act, P. L. 116-260, qualifying organizations generally must employ 300 or fewer employees, but affiliation rules are relaxed for nonprofits and veterans' organizations, which may be eligible if they employ 500 or fewer employees per physical location. Other nonprofit organizations are still subject to the 300-employee limit per physical location.
Because COBRA premium assistance payments (discussed above) are eligible for 100 percent reimbursement via a payroll tax credit, such costs may not be included in PPP forgivable payroll costs.
On March 30, 2021, the availability of PPP loans was extended to May 31, 2021, or until allocated funds are exhausted. Check with your lender to determine if they require applications to be submitted prior to the May 31 deadline. Businesses are advised to file as soon as possible. Once the allocated funds are disbursed, no new loans will be issued.
Dependent Care FSA Exclusion Increased
The Act increases the exclusion for employer-provided dependent care assistance from $5,000 to $10,500 ($5,250 for married filing separately) for 2021. Employers would need to amend their cafeteria or dependent care flexible spending account plan to implement this change; however, the Act provides that such amendments may be retroactive if adopted no later than December 31, 2021.
Increased Affordable Care Act (ACA) Premium Subsidies
Affordable Care Act (ACA) premium subsidies are increased through 2022, in effect decreasing the required individual contribution. The Act provides a 100 percent subsidy for ACA coverage for unemployed persons and people earning up to 150 percent of the federal poverty level for two years. Individuals earning below 150 percent of the poverty level must currently pay up to four percent of their income.
The Act expands ACA subsidies for people with income over 400 percent of the federal poverty level, who were previously ineligible. Premium costs are now capped at 8.5 percent of income. Individuals who receive unemployment insurance at any time in 2021 will be able to obtain ACA coverage at no cost.
The Act provides taxpayer assistance for underfunded multiemployer pension (MEP) plans. The Pension Benefit Guaranty Corporation is authorized to offer financial assistance to eligible MEP plans which meet certain criteria, such as having been approved by the Treasury Department to reduce participant benefits or being in critical and declining status in any plan year from 2020 through 2022. The bill also increases MEP premiums to $52 per participant in 2031 and then indexes the rate to inflation. The Act makes specified changes to funding for single-employer pension plans as well.
For details on the America Rescue Plan Act, see https://www.congress.gov/bill/117th-congress/house-bill/1319/text
For details on the Employee Retention Credit, visit the IRS site at https://www.irs.gov/coronavirus/employee-retention-credit
For details on the FFCRA, visit the US Department of Labor Families First Coronavirus Response Act: Questions and Answers website at https://www.dol.gov/agencies/whd/pandemic/ffcra-questions
And/or the IRS COVID-19-Related Tax Credits for Required Paid Leave site.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
ADP is committed to assisting businesses with increased compliance requirements resulting from rapidly evolving legislation. Our goal is to help minimize your administrative burden across the entire spectrum of employment-related payroll, tax, HR and benefits, so that you can focus on running your business. This information is provided as a courtesy to assist in your understanding of the impact of certain regulatory requirements and should not be construed as tax or legal advice. Such information is by nature subject to revision and may not be the most current information available. ADP encourages readers to consult with appropriate legal and/or tax advisors. Please be advised that calls to and from ADP may be monitored or recorded.
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Updated on March 11, 2021