On March 10, 2021 Congress passed the American Rescue Plan Act (ARPA) of 2021, which was signed
into law on March 11th. The ARPA attempts to address and help mitigate some of the far-reaching financial impacts of the COVID-19 pandemic. In addition to those provisions, the ARPA contains provisions that are of special interest to employers and employees.
The ARPA Nitty Gritty
- COBRA Subsidy – A 100% premium subsidy is provided, funded through employer tax credits.
- FFCRA Leave – Employer tax credits have been extended through September 30, 2021.
- FFCRA Leave – Inclusion of testing and immunization as qualifying reasons for FFCRA leave.
- FFCRA Tax Credits – Definition of employee earnings eligible have been expanded.
- Unemployment – The $300 weekly increase has been extended and expanded.
- ACA – Exchange insurance subsidies are increased.
- DCAP – Contribution limits have been increased.
- Employee Retention Tax Credit – Extended and expanded eligibility for some businesses.
Let’s Break It Down
COBRA Subsidy
What is it?
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986) allows employees who would lose employer-sponsored health insurance because of job loss (or reduction in working hours) to continue that insurance for 18 months. However, the employer can require the employee that elects COBRA coverage to pay the entire cost of the premium oftentimes creating a necessary, but an unexpected financial burden for the employee.
ARPA Provisions
- 100% subsidy of COBRA premiums from April 1, 2021, through September 30, 2021, for employees and their family members who lost health insurance due to involuntary termination or reduction in hours of their employment
- Allows employees who declined COBRA coverage, or elected it and dropped it, to elect subsidized COBRA
- Does not apply to employees who voluntarily terminated their employment or who qualify for another group health plan
Who Pays For It?
The subsidy is funded through the federal government through a refundable payroll tax credit.
Action Steps
- New employee notice requirements for plan administrators will be issued by the US Department of Labor
- Employees may elect subsidized COBRA starting April 1, 2021, through 60 days after receiving notice of the benefit
FFCRA Leave
What is it?
FFCRA (Families First Coronavirus Response Act) was passed in March 2020 and provided a tax credit for employers to fund two types of paid employee leave required by the law. These leave requirements expired in December 2020, but for employers that chose to continue providing FFCRA leave voluntarily, the tax credit was extended through March 2021.
ARPA Provisions
- Extends tax credit through September 30, 2021
- Adds a provision to include employee time off related to COVID-19 testing and immunization
- Increases the amount of wages eligible for the family leave credit from $10,000 to $12,000 per employee
- Provides an additional 10 days of voluntary emergency paid sick leave for employees beginning April 1, 2021
Unemployment
What is it?
Due to the COVID-19 pandemic, unemployment provisions were expanded under the previous administration to include three new federal unemployment programs. These programs were scheduled to end no later than April 2021.
- Pandemic Unemployment Assistance (PUA): Provided weekly benefits to independent contractors, self-employed individuals, and other workers that typically would not be eligible for unemployment benefits
- Pandemic Emergency Unemployment Compensation (PEUC): Provides weekly benefits to individuals who have exhausted their eligibility for all other unemployment benefits
- Federal Pandemic Unemployment Compensation: Provides an additional $300 weekly payment to individuals already receiving PUA, PEUC, or regular unemployment benefits
ARPA Provisions
- Previously established provisions that were set to expire have been extended through September 6, 2021
- Changes how unemployment benefits are taxed, exempting the first $10,200 from federal income tax for each spouse in households with under $150,000 in adjusted gross income.
ACA
What is it?
The ACA (Affordable Care Act) established health insurance exchanges for the purchase of individual health insurance coverage, as well as premium tax credits. These tax credits are not available to individuals with income at or above 400% of the federal poverty level.
ARPA Provisions
- Temporarily eliminates the income cap on subsidies for a period of two years
- Limits the total amount a household is required to pay for health coverage through the Exchanges to 8.5% of household income
- Increases federal subsidy amounts available for lower-income individuals, in some cases eliminating premium costs entirely
- Increases federal funding intended to encourage states to expand Medicaid programs (if they previously had not done so)
- All provisions are temporary and will expire in two years
DCAP
What is it?
A DCAP (Dependent Care Assistance Plan), also sometimes referred to as a dependent care flexible spending account (FSA), is an employee benefit plan that helps employees pay for the care of a qualifying dependent, such as a child or elder, as defined by Internal Revenue Service (IRS) regulations.
ARPA Provisions
- Increases annual contribution limit from $5,000 to $10,500 ($2,500 to $5,250 for married filing separately) for tax years beginning after December 31, 2020 and before January 1, 2022
- Employers meeting requirements can retroactively amend plans to incorporate the increase
Action Steps
- Employers with DCAPs can retroactively amend plans, if
- The amendment is adopted by the last day of the plan year in which it is effective; and
- The plan operates consistently with the terms of the amendment until it is adopted.
- It is recommended that you speak with your benefits advisor to ensure plans meet the requirements and stay in compliance
Employee Retention Tax Credit
What is it?
The Employee Retention Tax Credit was originally enacted with the CARES (Coronavirus Aid, Relief and Economic Security) Act. The credit was tended to encourage employers to retain employees on their payroll who were unable to work due to COVID-19 related reasons. This credit was set to expire in June of 2021.
ARPA Provisions
- Extends the credit through the end of 2021
- Expands eligibility to some small startups that began operating after February 15, 2020. Qualifying businesses will be eligible for a maximum credit of up to $50,000 per quarter even if they do not experience an eligible decline in gross receipts or a full or partial suspension
- Creates a new provision for ‘severely financially distressed’ employers which beginning in the third quarter of 2021 allows employers of any size to count all wages toward the $10,000 cap.