By: Myrna Maysonet , Partner & Sarah Slaughter , Of Counsel
The American Rescue Plan Act of 2021 (“ARPA”) signed into law on March 11, 2021, contains a number of benefits for employees that employers will need to understand. Here are some of the key provisions of the ARPA that will impact employers.
COBRA Subsidy: Employers Pay, Receive Tax Credit
In a departure from the regular COBRA framework, the ARPA provides subsidized COBRA coverage for employees (and their family members) who experience a loss of group health coverage due to reduced hours of employment or involuntary termination of employment. Importantly, 100% of COBRA premiums are to be paid by employers who will be reimbursed via a tax credit on their quarterly payroll taxes. As discussed below, this ARPA provision introduces considerable administrative challenges for employers, although additional regulatory guidance is likely to be offered in the coming weeks.
Who is Eligible for the ARPA COBRA Subsidy?
The ARPA COBRA Subsidy (“Subsidy”) covers two categories of “Assistance Eligible Individuals”. First, any covered employee who becomes eligible for COBRA continuation coverage due to a qualifying termination is eligible for the Subsidy. Qualifying terminations are limited to involuntary terminations of employment or a reduction in hours significant to trigger a loss of coverage.
Second, the Subsidy is also available to individuals who previously became eligible for COBRA coverage and are still within their maximum coverage period
How Long Does the Subsidy Last?
The Subsidy is available for a six-month period from April 1, 2021 to September 30, 2021. Importantly, the ARPA does not extend the normal 18-month period of COBRA coverage. For example, an Assistance Eligible Individual who has already had COBRA coverage for 16 months on April 1, 2021 will only be eligible for the Subsidy for two months – not until September 30, 2021. Anyone electing COBRA during the Special Enrollment Period will be covered beginning on April 1, 2021, but their COBRA coverage will not continue past the date that their maximum COBRA coverage period would have otherwise expired if they had elected COBRA when originally available. The Subsidy Period would also end if the Assistance Eligible Individual becomes eligible for coverage under another group plan or Medicare.
What Does This Mean for Employers?
First, because the American Rescue Plan Act requires health plan sponsors to provide notice of the Subsidy and the Special Enrollment Period, employers will need to identify Assistance Eligible Individuals. This means that employers will not only need to provide COBRA election paperwork to individuals who become eligible during the Subsidy Period, but they will also need to identify and notify individuals who experienced a qualifying termination during the last 18 months and who may be eligible to enroll during the Special Enrollment Period. Employers must also provide notice of the expiration of the subsidized coverage. The federal government is expected to issue a model notice, for employers’ use, within the next 30-days, but employers should immediately begin the process of identifying Assistance Eligible Individuals.
Second, employers are obligated to provide this subsidized COBRA coverage and must pay the Assistance Eligible Individual’s premium. However, employers can then claim credit for those premiums against their quarterly Medicare payroll tax. The credit can be advanced and is refundable, so an employer could claim a refund if the premiums paid exceed the taxes due.
Again, federal agencies are expected to issue further guidance on this process in coming weeks.
Incentives for Employers to Continue Paid FFCRA Leave
The ARPA does not require that employers provide any form of paid leave to employees. However, the Act does contain federal tax credits in order to encourage employers to voluntarily offer paid leave of the type required under last year’s Families First Coronavirus Response Act (FFCRA).
The FFCRA required covered employers of fewer than 500 employees to provide emergency paid sick leave and paid expanded family and medical leave to employees affected by COVID-19. Although the FFCRA expired as of December 31, 2020, a federal tax credit was extended late last year through March 31, 2021 for employers who voluntarily continue providing such paid leaves. The American Rescue Plan Act extends the tax credit for six months to September 30, 2021.
ARPA also adds the following as qualifying reasons for employees to take the paid leaves: the employee is obtaining immunization (vaccination) related to COVID-19; the employee is recovering from a condition, illness or disability related to the vaccination; and, the employee is seeking or awaiting the results of a COVID-19 test or diagnosis (including where the employer has requested the test or diagnosis).
ARPA re-sets as of April 1, 2021 the limit on the tax credit available for Emergency Paid Sick Leave (“EPSL”) to a maximum of 80 hours in wages per full-time employee. Employers may voluntarily provide employees up to 80 hours of EPSL in the period from April through September 2021, in addition to any EPSL provided earlier, and be eligible for the corresponding tax credit.
Next, the amount of wages for which an employer may claim the tax credit for paid expanded FMLA leave from $10,000 to $12,000 annually per employee. The ARPA disqualifies employers from the tax credit where they treat highly compensated employees, full-time employees or employees with more tenure differently under a voluntary paid sick leave plan.
In light of the ARPA extending through September 2021 the available tax credits, employers may wish to consider whether to continue or implement FFCRA-like EPSL and paid expanded FMLA leave.
Extension of Employee Retention Tax Credit
Under the ARPA, employers are now permitted to receive a PPP loan and the employee retention tax credit retroactive to the effective date of the CARES Act (for wages paid after March 12, 2020). However, the credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven. The ARPA also extends the employee retention tax credit through December 31, 2021.
Increased Limit on Employer-Provided Dependent Care Assistance
Dependent care assistance programs (DCAPs) under Internal Revenue Code Section 129 typically are funded with pre-tax, salary reduction contributions made by participating employees through a Code Section 125 cafeteria plan. These funds are held in the employer’s general account until needed to reimburse the employee for qualified childcare and other dependent care expenses incurred during the year.
The ARPA increases the maximum amount from $5,000 to $10,500 ($5,250 for married employees filing separately) that may be excluded from an employee’s income under Section 129. The increased benefit limits are not mandatory and will require plan amendment. Participants should be made aware of the increased limits as soon as possible so that they will be able to spread the increased salary reductions over as many pay periods as possible.
If you have any questions about the American Rescue Plan Act and its potential impact on your business, please contact any member of the Greenspoon Marder Labor & Employment team to discuss your particular situation.
