On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARP) into law. The $1.9 trillion coronavirus relief bill was approved by the House (220-211) on March 10th, following the approval in the Senate (50-49) on March 6th.
Since it passed the House in its original form on February 27, 2021, the legislation has undergone some changes. One of the Senate’s revisions to the ARP removed the provision to raise the federal minimum wage to $15 per hour.
We are taking a look at some of the ARP provisions and related considerations for employers and individuals.
Key Provisions for Employers
Family and Sick Leave Credits
As of December 31, 2020, employers have not been required to offer leave under The Families First Coronavirus Response Act (FFCRA); however, the Consolidated Appropriations Act, 2021 (CAA) extended the refundable payroll tax credits for employers voluntarily paying sick and family leave after the end of 2020 through March 31, 2021. Now, the ARP extends those credits for these employers through September 30, 2021. It’s important for employers to understand state and local laws as well. Some jurisdictions may choose to extend certain paid sick and family leave requirements outside the bounds of current federal FFCRA requirements.
Effective March 31, 2021, the ARP also increases the limit on the credit for paid family leave per employee from $10,000 to $12,000 because the first 2 weeks of family leave are now paid. Also, for sick leave, the 10-day per employee limitation resets, so a new 10-day period becomes available on April 1, 2021. In addition to being applicable to old-age, survivors, and disability insurance (OASDI) taxes, the credits are now applicable to the Medicare portion of FICA.
For self-employed workers, the ARP increases the number of days of paid leave (retroactively to December 31, 2020) from 50 days to 60 days.
The ARP allows paid leave credits to be used for leave due to obtaining a COVID-19 vaccination, recovery from a COVID-19 vaccine-related illness or injury, when seeking or awaiting a COVID-19 diagnosis or the results of a COVID-19 diagnostic test. The credits now also provide employers reimbursement for pension plan and apprenticeship program contributions associated with qualifying FFCRA sick or family leave wages paid under a collective bargaining agreement.
The ARP disallows the credit for employers without uniform paid-leave policies, such as those favoring highly-compensated employees, full-time workers, or tenured employees.
COBRA Continuation Coverage
Under the ARP, the Federal Government will pay 100% of COBRA insurance premiums for eligible individuals between April 1, 2021, and September 30, 2021. Employees are eligible for COBRA continuation coverage if they lost their jobs because of the pandemic. The coverage also includes premiums for their covered relatives and allows them to stay on their company-sponsored health plan.
This assistance will not count towards an employee’s gross income, as it is an advance refundable payroll tax credit that applies to premiums and wages paid after April 1, 2021, and through September 30, 2021.
Federal officials have been tasked with developing model notices for these purposes within 45 days of enactment. Once they are available, employers and group health plans will be required to provide these new notices to those who become eligible for COBRA continuation coverage.
Dependent Care Flexible Spending Accounts (FSAs)
The ARP increases the limit on contributions to dependent-care FSAs to $10,500 for married couples filing jointly and $5,250 for single filers.
Federal Pandemic Unemployment Insurance Benefits
The ARP provides federal unemployment benefits of $300 a week from March 14, 2021, through September 6, 2021, and increases the total number of weeks of benefits from 50 to 79 for individuals who cannot return to work safely. The ARP also provides 53 weeks of federal unemployment insurance benefits after the state benefits end. The legislation makes the first $10,200 in unemployment benefits tax-free in 2020 for households making less than $150,000 per year.
Employee Retention Credit
The Employee Retention Credit (ERC) was established by the CARES Act. Under the CAA and the ARP, more employers may now leverage the wages of employees they retained through 2020 and all of 2021 into tax credits that will directly offset employment taxes paid to the IRS on Form 941. These credits can be valued up to $33,000 per retained employee. PPP borrowers are now eligible to claim the ERC, although the IRS will not allow wages that were previously used for PPP Forgiveness to be claimed for the ERC. The ARP also allows employers to use the ERC against their share of Sec. 3111(b) Medicare taxes.
Paycheck Protection Program
Although the program is still set to end on March 31, 2021, the ARP provides additional funding of $7.25 billion for the Paycheck Protection Program (PPP).
Economic Injury Disaster Loan (EIDL)
The ARP provides $10 billion to the EIDL program to provide funds for eligible small employers that did not receive their full advance payments under the CAA. To be eligible, these small employers must have fewer than 300 employees and an economic loss of more than 30% during a specified 8-week period compared to a pre-pandemic 8-week period. Targeted EIDL grants from the SBA will not get included in gross income, and excluding them will not result in denial of deductions, a reduction in tax attributes, or denial of basis increase.
The ARP also provides $5 billion to the EIDL program to provide small eligible employers with ten or fewer employees with at least a 50% decline in gross receipts during a specified period with new supplemental advances of up to $5,000. Even if an employer is ultimately denied for the EIDL, the employer will not have to repay the advance.
Restaurant Revitalization Fund
The ARP establishes a $28.6 billion Restaurant Revitalization Fund for industry-focused grants for restaurants, food trucks, bars and brewpubs, and other establishments to cover COVID-19-related revenue losses from February 15, 2020 through the end of 2021. The SBA is working on the application process. If the business has fewer than 20 locations, each location may receive grants of up to $5 million, not to exceed $10 million in total for the group.
Generally, eligibility is calculated based on the difference between 2020 sales and 2019 revenue and based on revenue losses related to COVID-19. However, businesses are still eligible if they opened in 2019 or 2020. Targeted grants will also be available for qualifying businesses with revenues of less than $500,000 in 2019.
Qualifying businesses can use these grants to cover payroll costs, paid sick leave, rent, utility bills, maintenance, construction of outdoor seating, personal protective equipment (PPP), cleaning supplies, and other SBA-approved costs dating back to February 15, 2020, and through December 31, 2021.
Shuttered Venue Operators Grant Program
The ARP adds $1.25 billion in funding for the SVOG program. Eligible entities include live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, and talent representatives. The ARP allows eligible entities that also received a first or second draw PPP loan after December 27, 2020, to also receive a SVOG, as long as the SVOG is reduced by the amount of PPP funding.
State Small Business Credit Initiative
The ARP provided $10 billion in funding for state governments to help them strengthen their small business financing programs and help their economies recover.
Key Provisions for Individuals
Recovery Rebate Credits
The ARP provides recovery rebate credits of:
- $1,400 for single taxpayers
- $2,800 for married taxpayers filing jointly
- $1,400 for each dependent for 2021
Recovery rebates are available for individuals with Social Security Numbers, subject to phase-out limits based on 2020 AGI (2019, if 2020 not yet filed):
- For single taxpayers: phase-out begins at adjusted gross income (AGI) of $75,000; complete phase-out occurs at $80,000.
- For married taxpayers filing jointly: phase-out begins at AGI of $150,000; complete phase-out occurs at $160,000.
- For taxpayers filing as head of household: phase-out begins at AGI of $112,500; complete phase-out occurs at $120,000.
Child Tax Credit
For tax year 2021 only, the ARP increases the credit amount to $3,000 per child or $3,600 for a child under six. The ARP makes the credit amount fully refundable, and increases the maximum age for a child to qualify to 17. The excess of the amount (over the original credit amount under current legislation of $2,000) is subject to phase-out limits.
Earned Income Tax Credit
The ARP temporarily allows taxpayers to use their 2019 income in figuring the EITC amount. The ARP increases the credit’s phase-out percentage to 15.3%, increases the phase-out amounts, changes the credit’s availability to certain separated spouses, and raises the threshold for disqualifying investment income to $10,000. The ARP also introduces special rules for 2021 only for individuals with no children.
Premium Tax Credits
The ARP modifies affordability percentages used in calculating the credit for 2021 and 2022. The ARP also establishes a special rule for 2021 that includes taxpayers who received or were approved to receive unemployment compensation for any week beginning during 2021.
Student Loan Forgiveness
Under the ARP, forgiven student loan amounts for loans discharged between December 31, 2020, and January 1, 2026, are tax-free, as they may be excluded from income.
Dependent Care Benefits
For 2021, the ARP makes the dependent care tax credit fully refundable and increases the amount of eligible qualifying expenses to $8,000 for one individual and $16,000 for two or more individuals. The credit will be worth 50% of eligible expenses, up to a limit based on income, so the credit is worth up to $4,000 for one qualifying individual or $8,000 for two or more.
Rent, Mortgage, and Homelessness Assistance
The ARP allocates $27 billion toward rent and utility bill relief to renters, $10 billion toward mortgage payment relief for homeowners, and $5 billion toward addressing homelessness.
Contact Commonwealth Payroll & HR
At Commonwealth Payroll & HR, we understand that employers have a lot to take in right now. We can help you answer questions relating to legislative changes.
We also offer a PPP Forgiveness Coach Program to assist with the PPP Loan Forgiveness Application process and an Employee Retention Credit Seeker Program to help employers understand ERC eligibility, determine if they qualify, and maximize their available credits.
To learn more or get answers to your questions, contact us today.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. This article contains links to other third-party websites provided only for the convenience of the reader.