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How the American Rescue Plan Act May Affect Your Business

The American Rescue Plan Act (ARPA) of 2021 was passed in early March of 2021. This is the third significant federal package released in response to the effects that the on-going pandemic has had. The $1.9 trillion act includes various provisions that can directly affect employers and the general workforce. Employers should familiarize themselves with the updated and added provisions for compliance purposes and to better understand what they are eligible for.

 

Small Business Assistance 

Grants and loans for small businesses have been included in this bill. Funding includes:

 

Dependent Care  

A temporary increase on the limits for the Dependent Care Assistance Plan (DCAP) was included in the recent legislation. For the 2021 tax year, up to $10,500 (up from $5,000) of dependent care expenses reimbursed under a DCAP may be excluded from a participant’s taxable compensation. The higher limits apply to the plan year beginning after Dec. 31, 2020 and before Jan. 1, 2022.

 

COBRA 

The ARPA contains COBRA premium assistance in the form of a subsidy to individuals that have lost their employer-sponsored healthcare due to a job loss or reduction of hours that was brought on by the pandemic. Those that qualify are eligible for a subsidy that fully covers their COBRA premiums from April 1, 2021, to September 30, 2021.

Employers may be eligible for a refundable payroll tax credit in an amount equal to the employee’s subsidy. Eligibility is available for employers subject to COBRA or those that have a self-insured benefit plan. Employers must include information on the new premium subsidy when sending out required COBRA notices to participants. The Department of Labor (DOL) is set to issue notice examples for employers to use in the coming weeks.

FFCRA 

As of January 1, 2021, The Families First Coronavirus Response Act (FFCRA) paid leave became optional. Employers were no longer required to participate but would continue to receive tax credits for the payments made to employees that were on leave for qualified circumstances through March 31, 2021.

The ARPA has now extended the FFCRA from April 1, 2021, to September 30, 2021 for those organizations that continue to voluntarily offer pandemic-related paid sick leave to their employees. Additionally, employee’s sick leave rights are reset on April 1, 2021. This means that if an individual used FFCRA leave prior to that date, it does not affect their future right to the amended FFCRA under ARPA.

The following changes have been applied to the extended tax credit and will take effect on April 1, 2021:

  • The credit has switched from the employer portion of Social Security tax to the employer portion of Medicare tax.
  • The maximum amount of the employer’s Family and Medical Leave Act (FMLA) tax credit increases from $10,000 to $12,000.
  • The 10-day limit for the tax credit for paid sick leave under FFCRA has been reset to April 1, 2021. Any days an employee took before that date do not count toward the cap after that date.
  • The number of days of paid sick leave for self-employed workers have been increased from 50 to 60 days.
  • The maximum amount of weeks an employee can seek leave for has been increased from 10 to 12.
  • If the employer chooses to continue to provide FFCRA leave, then employees may utilize emergency FMLA for the same reasons used for emergency PSL .
  • Employers can receive FFCRA tax credits now for providing paid leave to employees receiving a COVID-19 vaccination or recovering from injury or illness related to a COVID-19 vaccination.
  • FFCRA leave is available for employees who are unable to work while seeking or waiting for results of a diagnostic test or medical diagnosis.

 

Employee Retention Tax Credit 

The recent legislation extends the availability of the Coronavirus Aid, Relief, and Economic Security Act (CARES), employee retention tax credit (ERC) from July 1, 2021, to December 31, 2021. The framework for the ERC has mostly remained the same from when it was updated through the Consolidated Appropriations Act in December of 2020. However, please note the following:

  • The credit percentage will remain at 70 percent of up to $10,000 in wages per employee per quarter. This totals to $28,000 per employee for 2021.
  • Employers may be eligible for the credit if operations were fully or partially suspended due to a governmental order related to COVID-19-OR- An employer can demonstrate that gross receipts for a calendar quarter are less than 80 percent of the gross receipts for the same calendar quarter in 2019.
  • For 2021, employers may also compare gross receipts with the immediately preceding calendar quarter to determine eligibility.
  • Eligibility for the credit is dependent upon the employer’s size.  The definition of a large employer was changed to 500 or more full-time employees for 2021.  Large employers may claim the credit only on wages paid to employees not providing services.
  • All wages paid by small employers (less than 500 employees) may be eligible for the credit.

 

A new category of business listed as “recovery startup business” has been added to the list of those eligible for the credit. A recovery startup business is an employer that:

  • Began carrying on a trade or business after February 15, 2020.
  • Did not have average gross receipts that exceeded $1 million for said business during the three-year taxable period ending with the taxable year which precedes the calendar quarter for which the credit is being claimed.
  • Did not experience a government-ordered full or partial shutdown or a significant decline in gross receipts for the calendar quarter for which the credit is being claimed.

 

The ERC is limited to $50,000 for businesses that fall under this category.

Additionally, the ARPA allows severely financially distressed businesses to claim the credit on ALL wages paid (up to $10,000 per employee, per quarter), regardless of employer size, effective July 1, 2021.

A severely financially distressed business is one that can demonstrate that gross receipts are less than 10 percent of the gross receipts for the same calendar quarter in 2019. The limitation for large employers on wages paid to employees for not working does not apply to severely financially distressed employers.

Is there anything Payroll Systems can help you with as you accommodate rapid legislation changes? Reach out and talk to us about the easy-to-scale solutions you need for managing your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.