American Rescue Plan Act: Provisions Affecting Employers
On March 11, President Biden signed into law the American Rescue Plan Act that provides additional relief to businesses and individuals through direct aid, tax credits, and loans.
Here is an overview of major provisions of the law that will affect employers.
Employee Retention Credit Extended
The Employee Retention Credit was created by the CARES Act to reimburse employers for a percent of wages paid to employees. The December 2020 coronavirus relief bill (the Consolidated Appropriations Act) dramatically expanded employer eligibility: employers with less than 500 full-time employees who saw a decline of 20% or more in gross receipts could receive this tax credit for wages paid to all employees.
The new bill extends this tax credit through December 31, 2021. The credit rate remains 70% of wages up to a limit of $10,000 per employee per quarter. However, with the credit extended through the end of the year, the 2021 max has gone up to $28,000 per employee (70% of $40,000).
Employers eligibility remains the same; however, it does extend the credit to new businesses that began operating after February 15, 2020 and have annual gross receipts of less than $1 million. The credit for these “recovery startup businesses” is capped at $50,000 per quarter.
FFCRA Leave Tax Credits Extended
The Families First Coronavirus Response Act (FFCRA) required employers to provide up to 80 hours of paid leave for certain coronavirus-related reasons and reimbursed employers 100% through payroll tax credits. That law expired at the end of 2020, but employers who continued to offer FFCRA leave could still receive this tax credit through March 31, 2021.
ARPA extends these payroll tax credits through September 30, 2021. It does not make offering FFCRA leave mandatory, but employers who continue to provide their employees paid leave for coronavirus-related reasons will be reimbursed.
The law also adds new qualifying reasons that employees may use FFCRA leave for: time off while waiting to receive results from a COVID-19 test, and time off to get vaccinated or to recover from effects of the vaccine.
Employers should keep in mind that they cannot receive FFCRA tax credits for wages that they received a forgivable PPP loan for.
Aid for Restaurants and Small Businesses
The bill sets aside $28.6 billion to create a new grant program administered by the Small Business Administration (SBA) that is specifically for restaurants, bars and other food businesses and venues. and this aid can be used not just for payroll but also for mortgage payments, rent, utilities, food and beverage expenses, and other essential expenses.
The amount given to any business will be capped at $10 million, or $5 million per location. However, if a business received the Employee Retention Credit or PPP loan, the grant will be reduced by this amount.
The bill also adds $15 billion to the Small Business Administration’s Emergency Injury Disaster Loan (EIDL) program, which provides long-term, low-interest loans to small business. $5 billion of this is set aside for small businesses with fewer than 10 employees.
The SBA will have to provide more information and guidance about how these programs will work.
Paycheck Protection Program
The new bill allocates $7.25 billion in additional funds to the Paycheck Protection Program and expands eligibility to include more nonprofit organizations. There are no other major changes to the PPP expansion that was passed in December and opened the program to second-draw loans. The deadline to apply for a second PPP loan is still March 31, 2021.
ARPA provides a 100% subsidy of COBRA premiums to employees (and covered dependents) who lost their jobs because of the pandemic, or lost coverage because their hours were reduced. The subsidy will be available April 1, 2021-September 30, 2021. The law also allows employees who did not elect COBRA or who discontinued their COBRA coverage previous to enroll starting April 1, 2021. Employees who left their jobs voluntarily are not eligible for premium subsidies.
(Background on COBRA: COBRA allows employees to stay on their employer’s health plan up to 18 months after ending employment. Employers can, and typically do, require the employee to pay the full cost of premiums plus a 2% admin fee. If the individual becomes eligible for insurance under Medicare or another group plan, then he or she is no longer eligible for COBRA.)
Under the new law, employers are responsible for paying the premiums and will be reimbursed as a through a payroll tax credit. They may be able to get the credit in advance by completing IRS Form 7200.
COBRA premiums cannot be counted towards forgivable PPP costs since these are already being reimbursed under the new law.
Employers will also be responsible for updating their COBRA notice forms to explain eligibility for premium subsidies and new deadlines. The Department of Labor is required to provide a template of these notices so stay tuned for more information about fulfilling this requirement of the law.
We expect more clarification and guidance to be provided on how COBRA subsidies will work and how employers can comply with the law. Employers can prepare now for these upcoming COBRA obligations by gathering a list of employees that are eligible for COBRA from April through September.
The Anthros team closely monitors new guidance, legislation and regulatory updates. As more information becomes available about new provisions created under this law, we will share this information with clients and on our blog.