The American Rescue Plan Act of 2021
Covid-19 Relief | Mar 23, 2021
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In the recently signed American Rescue Plan Act (ARPA) of 2021, most of the focus has been on the direct payments to individuals. However, this act includes other relief measures directed at businesses.
As with other recently signed legislations, the ARPA mostly modifies or extends existing relief measures. Many of these measures were first introduced in the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES).
Here is a summary of the ARPA's key provisions that impact businesses:
Paid Sick and Family Leave
Originally introduced in the FFCRA, the ARPA extends the available credits to employers offering emergency sick and family leave. These credits are now available through September 30, 2021. The act increased the covered wages to $12,000 per employee; it was originally $10,000.
Employers are not required to offer this leave; the ARPA keeps it optional.
The act expands the list of qualified reasons for taking leave. An employee will now qualify for leave if he/she is...
- getting a Covid-19 vaccination;
- recovering from any complications as a result of getting vaccinated;
- or awaiting the results of a Covid-19 test.
On April 1, 2021, the 10-day limit for the tax credit is reset. If an employee took sick leave prior to this date, those days will not count towards the limit after April 1.
Employee Retention Credit
The ARPA extends the Employee Retention Credit (ERC) to December 31, 2021; it was originally set to expire on June 30, 2021.
For the 3rd and 4th quarters of 2021, the ERC is a credit against Medicare taxes. Previously, it was a credit against Social Security taxes.
Qualified new businesses can now utilize the ERC. The ARPA defines a “Recovery Startup Business” as one that began after February 15, 2020 with averaged annual receipts less than $1 million. The maximum available credit is capped at $50,000 per quarter for these startups.
Finally, the ARPA modifies the requirements on “Severely Financially Distressed Employers.” An employer is considered "severely financially distressed" if their gross receipts have fallen over 90% when compared to the corresponding quarter in 2019.
With this new provision, “severely financially distressed employers” can apply the ERC to all wages paid to employees, up to the $10,000 per employee, per quarter limit. Previously, employers with more than 500 full-time employees could only apply the credit for wages paid to employees for time that the employee was not providing services.
Paycheck Protection Program
The ARPA infuses additional funding into the Paycheck Protection Program (PPP) loans and expands the list of eligible entities. PPP loans are now available to labor organizations, social/recreational clubs, and fraternal benefit societies. In addition, charities with 500 or fewer employees per physical location now qualify for a loan.
Furthermore, the ARPA introduces criteria for “additional covered nonprofit entities.” These include nonprofits that…
- are not included in Section 501(c)(3), 501(c)(4), 501(c)(6) or 501(c)(19) of the Internal Revenue Code;
- have 300 or fewer employees;
- did not receive more than 15% of its receipts from lobbyist activities;
- and did not exceed $1 million in the most recent tax year.
The ARPA introduces a 100% COBRA subsidy for any qualified employee who loses coverage due to an involuntary termination or a reduction in hours. This subsidy is effective beginning in April and goes through September 2021.
Employers will still pay any COBRA premiums. However, they will be reimbursed for the premium, including any administrative fees, with a refundable tax credit against the employer-share of Medicare tax.
This subsidy is available for as long as the individual is not eligible for other group health plan coverage and is still within the maximum period of continuation coverage.
Because 100% of the COBRA premiums are eligible to be reimbursed, any associated costs are not qualified as a "forgivable expense" for PPP loans. In addition, an employer is prevented from “double-dipping.” In other words, an employer cannot claim the credit for any amounts used as a qualified wage for the ERC or paid sick and family leave credits.
For More Information
The Department of the Treasury has a fact sheet detailing other measures included in the ARPA, such as the economic impact payments and child tax credit.
Disclaimer: This is simply a summary of some parts of the American Rescue Plan Act (ARPA). This does not constitute legal advice. Always check with your own legal and/or financial advisors as to how the provisions in this act and others may apply to you or your business.