Fact-Check: Updates on the American Rescue Plan Act of 2021

April 6, 2021

Now more than ever it is critical for business owners to be informed about the COVID-19 relief programs that are available to help employers. For up to date information, please follow us on Facebook, Instagram, LinkedIn, and BizChecksPayroll.com.

Our software partner, iSolved, has provided this excellent summary of the American Rescue Plan Act of 2021. We have also provided additional information about Mass Unemployment rates at the end of this summary.

American Rescue Plan Act

The American Rescue Plan Act of 2021 (“ARPA” or “the Act”) was signed by President Biden on March 11, 2021. The Act includes a wide variety of provisions designed to provide various areas of relief for individuals and businesses struggling due to COVID-1. The following information highlights the provisions relating to the ARPA.

100% COBRA Continuation Coverage Premium Subsidy for Individuals and their Families

The Act provides COBRA premiums for “assistance-eligible individuals” to be subsidized by the federal government, through payroll tax credits, for a period of six months, beginning on April 1, 2021 and ending on September 30, 2021.

What is the subsidy amount? 100% of the cost of premiums during the “Period of Coverage” timeframe of April 1, 2021 and when the subsidy is set to expire on September 30, 2021, subject to otherwise applicable maximum periods of coverage (typically 18 months) under COBRA.

Who is eligible for the COBRA premium subsidy? Any “assistance-eligible individual” who loses coverage due to an involuntary termination of employment or because of an involuntary reduction of hours, and who would otherwise be eligible during the timeframe between April 1, 2021 and September 30.

– Individuals who lose coverage during Period of Coverage due to an involuntary termination of employment or because of a reduction of hours

– Individuals who lost coverage and did not elect COBRA but would otherwise have been eligible for the premium subsidy during Period of Coverage.

– Individuals who elected and terminated coverage prior to 4/1 and who would otherwise be eligible for the premium subsidy.

What does it mean to be an assistance eligible individual? Defined generally as including any employee or dependent who loses group health plan coverage due to an involuntary termination of employment or because of a reduction of hours.
What is the maximum coverage period of COBRA premium assistance? For any assistance eligible individuals who are enrolled or enroll in COBRA due to this subsidy, the subsidy that will be in effect from the April 1 through September 30th “Period of Coverage” will end earlier if the individual’s maximum period of COBRA coverage ends prior to September 30th, or if they become eligible for coverage under another group health plan or Medicare. It is important to note that individuals who fail to notify their group health plan if they become eligible for other coverage or Medicare will be subject to the greater of a $250 penalty or 110% of the premium subsidy provided after loss of eligibility.
How does the special election period work? The Act also creates a special election period for any individual who did not elect federal COBRA continuation coverage but who otherwise would have been eligible for the COBRA subsidy and for any individual who elected federal COBRA continuation coverage and discontinued such coverage before April 1, 2021. These individuals will be able to elect COBRA coverage within 60 days of receiving the required employer notice. The resulting COBRA continuation coverage begins with the first period of COBRA continuation coverage beginning on or after April 1, 2021 – making the special election prospective instead of retroactive to what their original effective date for COBRA coverage or when their coverage originally lapsed.
How do employers claim a credit for the subsidy amounts? Employers will obtain the subsidy that they must provide to assistance eligible individuals, through a payroll tax credit against employers’ quarterly taxes. If the credit exceeds the amount of payroll taxes due, the credit would be refundable when employers submit Form 941, their quarterly tax return. The credit could also be advanced under rules that will be set by the Treasury Department.
How and when will assistance-eligible individuals receive notice? The Act tasks the Department of Labor (DOL) and Internal Revenue Service (IRS) with issuing regulations and guidance on the COBRA subsidy provisions of the Act. In addition, the Act requires the DOL to produce model COBRA election notices within 30 days of enactment and a model COBRA premium subsidy expiration notice within 45 days of enactment.

Coordination of COBRA Premium Subsidy and Extension of COBRA Deadlines

To complicate matters further, the individuals who are eligible for the extended COBRA deadlines, clarified in guidance issued on February 26, 2021, will also be eligible for subsidy provisions if they meet the eligibility requirements as assistance eligible individuals. As a reminder, the COBRA extension deadline relief we refer to here provides that COBRA deadlines that otherwise would occur during the “outbreak period” (the period beginning March 1, 2020 and ending 60 days after the announced end of the presidentially declared national emergency) must be tolled until the earlier of one year from the date the deadline otherwise would have applied or the end of the outbreak period.

Temporary Increase to Dependent Care Flexible Spending Account Maximum Limit for 2021

Another of the provisions included in the Act is the option for employers to increase the maximum amount that that may be contributed to an employee’s Dependent Care FSA from $5,000 ($2,500 married filing separately) to $10,500 ($5,250 married filing separately). Retroactive amendments will be permitted if an amendment is adopted by the last day of the 2021 plan year and the plan is administered consistently with the terms of the amendment beginning on its effective date. This relief will be in addition to the optional unlimited carryover and/or extended grace period from the relief enacted on December 27, 2020 under the Consolidated Appropriations Act, 2021.

Temporary (Optional) Extension of FFCRA Tax Credits for Paid Sick and Family Leave

Employers who voluntarily choose to provide eligible employees with Emergency Paid Sick Leave or Emergency Family Medical Leave from the previous optional extension date of 3/31/2021 has been extended to 9/30/2021.

Sick and family leave credit for optional paid leave between 4/1/2021-9/30/2021 will be taxable for employer Medicare and OASDI taxes on qualified leave wages when payment is made, but the taxes will be taken as a credit on future tax payments.

– Previously, only the employer Medicare tax was taken as a credit after the tax was calculated; now both the employer Medicare and OASDI taxes are taken as credits.

Amount of wages eligible for paid family leave credit will increase to $12,000/employee.

The reason for leave for which a credit can be claimed includes time off for a COVID-19-19 vaccine or to recover from a vaccine-related illness or injury.

The 10-day per employee limit on claiming the credit resets 4/1/2021.

We will be providing additional information on the partner portal related to coding FFCRA wages earned after 4/1/2021.

ARPA further extends the ERTC through 12/31/2021.

The ERTC is applicable to Medicare and OASDI taxes on qualified wages.

The ERTC is not available for payroll costs included in PPP, shuttered venue grants, and restaurant revitalization grants.

Paycheck Protection Program

Additional funding has been provided for the PPP.

On March 31, the PPP extension act was signed by President Biden. The act gives business another 60 days to May 31, 2021 to apply for a PPP loan. The SBA is currently Projecting that based on current lending rates funding will only last until mid-April.

2021 Massachusetts Unemployment Rates

Governor Baker recently signed a bill “freezing” unemployment rates for 2021. Employers should understand that while this legislation will keep the current rate schedule in place they still may experience and increase or decrease due to a change in their experience rating. Any increase or decrease will be retroactive to January 1st, 2021. We hope to have new rates by April 15th so please stay tuned.

Restaurant Revitalization Fund Grants

The ARPA of 2021 created a Restaurant Revitalization Fund which will provide $28.5 billion in grants to restaurants in need. Grants will be provided based on lost revenue and applications administered through the Small Business Administration. Employers should consult their CPA for details.