On March 11, 2021, President Biden signed into law the American Rescue Plan Act, which provides approximately $1.9 trillion in support and stimulus to individuals, businesses, organizations, as well as state and local governments. Following are select highlights that may be relevant to employers. However, the Act contains many different funding and support programs beyond what is described below.
Recovery Rebates to Individuals (Stimulus Checks)
The Act authorizes the Internal Revenue Service (IRS) to pay $1,400 to individuals and an additional $1,400 for each dependent of the taxpayer up to specified income limits. These payments are fully phased out for single filers earning $80,000, head of household filers with $120,000 in income, and joint filers making $160,000.
Unemployment Insurance Benefits Supplements
The federal unemployment supplement, which was scheduled to expire on March 14th, is extended with a federal supplement of $300/week through September 6th. In addition, the first $10,200 in Unemployment Insurance benefits received in 2020 is now nontaxable for households with under $150,000 in taxable earnings. In the case of a joint return, up to $10,200 in unemployment insurance benefits received by each spouse would be nontaxable. This may affect income tax returns already filed for 2020. The IRS will need to advise taxpayers whether it will be necessary to amend 2020 income tax returns.
Increased Child Tax Credit
The Act increases the Child Tax Credit and the Earned Income Tax Credit for 2021from $2,000 to $3,000 per child over age six and $3,600 for each child who is under age six as of the close of the calendar year. These credits are subject to phase-out limits beginning at $75,000 in income for single filers and $150,000 for married filing jointly. The Child Tax Credit is fully refundable for 2021. Children remain eligible through age 17.
The IRS is directed to send periodic advance Child Tax Credit payments to qualifying families, beginning in July 2021. These payments would represent half of the Child Tax Credit to which a taxpayer is entitled for 2021. The remaining half will be claimed on the 2021 income tax return.
COBRA Health Coverage Subsidy
The Act provides a 100% COBRA Subsidy for qualified employees and dependents who lose coverage as a result of involuntary terminations or reductions in hours (qualified individuals). In addition to new qualified employees and dependents, qualified individuals who are still within their COBRA maximum period but who had not previously elected to continue coverage will be given the opportunity to now elect COBRA as well. Employers would pay the COBRA premium and be reimbursed via a refundable payroll tax credit. The subsidy would be effective for coverage periods beginning in April through September 2021. The subsidy is only available for as long as the qualified individual is not eligible for other group health plan coverage, is within their COBRA maximum period (typically 18 months from the date of the qualifying event) and/or the end of the subsidy period.
New notices will be required to advise potential qualified individuals of the availability of COBRA premium assistance for health coverage and the option to enroll in coverage. The Department of Labor, in consultation with the Treasury and Health and Human Services Departments, will publish model notices by April 10, 2021.
Employee Retention Credit Extended Through 2021
The Employee Retention Credit (ERC), which was scheduled to expire on June 30, 2021, is extended through December 2021. The credit percentage remains 70 percent of up to $10,000 in qualified wages per employee per quarter, i.e., a $28,000 maximum credit per employee for 2021. Employers may qualify if their operation is fully or partially suspended due to orders from a governmental authority related to COVID-19, or if the organization can demonstrate that gross receipts for a calendar quarter are less than 80 percent of the gross receipts of the employer for the same calendar quarter in 2019. The credit is increased by the proportionate share of an employer's health costs related to such wages.
Families First Coronavirus Response Act (FFCRA) Paid Sick and Family Leave Tax Credit
The FFCRA Paid Sick and Family Leave tax credit is extended beginning April 1, 2021through September 30, 2021, and remains refundable. The requirement for covered employers to offer paid FFCRA leave expired in 2020, but for covered employers that voluntarily offer it, such leave is funded by the federal government up to applicable limits. The original FFCRA 10-day limitation for paid sick leave applied from March 2020 through March 2021. The Act resets this limit for qualifying sick leave taken between April 1, 2021 and September 30, 2021.
The Act also adds new reasons for which employees may take paid sick or family leave and employers are entitled to the tax credit, including leave for time awaiting the results of a test to diagnose COVID-19, to obtain immunization for it, or to recover from any adverse health impacts arising from the immunization. The Act also increases the wage limit for paid family leave payments from $10,000 per employee to $12,000 per employee.
Finally, the Act provides that employers cannot "double dip" by taking credit for payroll costs that have been subject to PPP loan forgiveness.
Dependent Care FSA Allowance Increased
The Act increases the exclusion for employer-provided dependent care assistance from $5,000 to $10,500 ($5,250 for married filing separately) for 2021. Employers would need to amend their cafeteria or dependent care flexible spending account plan to implement this change; however, the Act provides that such amendments may be retroactive if adopted no later than December 31, 2021.