Representing $1.9 trillion in stimulus funds, ARPA is characterized as ‘one of the most progressive pieces of legislation in history' and builds on previous government measures to address the economic damage of the pandemic.
ARPA contains an array of recovery measures including assistance for homeowners, emergency rental assistance, and a capital projects fund. It also includes financial assistance for American businesses: with that in mind, it is important that employers and employees understand ARPA’s key features and how to access the financial relief it entails.
Applying Tax Credit Programs
ARPA has extended the tax credits that were introduced under the Families First Coronavirus Response Act (FFCRA) and the Consolidated Appropriations Act of 2021 (CCA) to 30 September 2021. Under the (expired) FFCRA and the CCA, employers with up to 500 employees had to provide 10 days of paid sick leave and 50 days paid family leave to employees that took time off work for Covid-19-related reasons. Employers could then claim reimbursement for those wages via tax credits.
In addition to extending the provisions, ARPA affects the tax credits in the following ways:
Employers may claim a refundable tax credit of up to 10 days per employee from 1 April 2021. The credit is available even if the employee previously took paid sick leave under the FFCRA and the CCA. ARPA expands the qualifying reasons for an employee taking sick leave to include:
- Waiting for a Covid-19 diagnosis or test result
- Receiving a Covid-19 vaccine
- Recovering from the side effects of a Covid-19 vaccine
Under the FFCRA and the CCA, the first two weeks of an employee’s 50 days of family leave was unpaid. Under ARPA, that requirement is removed and the amount of refundable tax credit for employees increased to $12,000 (from $10,000). This means that employees can take up to 12 weeks paid family leave between 1 April and 30 September 2021 (instead of 10 weeks leave). The qualifying reasons for taking paid family leave have been adjusted to include the reasons applicable to paid sick leave.
ARPA also expands the scope of the tax credits to include employer contributions to defined benefit pensions. In the third and fourth quarters of 2021, ARPA changes the status of the sick leave and family leave tax credits to represent the employer’s contributions to Medicare tax (as opposed to Social Security taxes). ARPA also includes a facility for the Internal Revenue Service to waive penalties if an employer fails to deposit employment taxes because they are anticipating receiving credit.
ARPA does not allow employers to discriminate between full and part time employees in the application of their paid leave policies.
Continuing Group Health Benefits
When employees lose group health benefits, under the Consolidated Omnibus Budget Reconciliation Act (COBRA) they may continue to claim those benefits for up to 18 months - but must pay for extended insurance premiums themselves. ARPA offers full subsidisation for those extended premiums for up to 6 months for employees that lost their coverage as a result of a reduction in work hours or an involuntary employment termination.
The ARPA subsidy is applicable from 1 April to 30 September 2021 but ends if the employee joins another group health plan. Employers must inform their employees of the available COBRA provisions and should identify any employees that lost group health coverage from 1 November 2019. The US Department of Labor has issued a model general notice on COBRA continuation which employers must send to affected employees by 31 May 2021.
Employers may claim reimbursement for premiums paid under COBRA through the same refundable tax credit procedures available for paid sick and family leave.
Avoiding Employee Lay-Offs
To reduce the number of employees laid off as a result of Covid-19 restrictions, ARPA includes measures to encourage employers to enact Short Term Compensation (STC) programs and to access employee retention credits (ERC):
STC programs: ARPA has extended the scope of the Coronavirus Aid, Relief, and Economic Security Act (CARES) to allow states to receive 100% federal reimbursement for unemployment benefits that are paid under STC programs. The STC provisions are in place until 6 September 2021 and employers should consult with their state administrations for approval of their specific STC plans.
Employee retention credits: ERC are tax credits that were introduced by the CARES Act to help employers keep inactive employees on payroll and are issued based on the wages paid to employees that are made inactive as a result of their employer’s economic hardship. Under the CARES Act, ERC provisions were scheduled to end on 1 July .2021: ARPA extends ERC to 31 December 2021 - with a quarterly cap of $7,000 per employee and a total cap of $14,000 per employee.
ARPA has also extended the scope of ERC eligibility. While ERC are available for employees in businesses with 500 employees or less, in businesses with more than 500 employees the credits were previously only available for furloughed workers. Under ARPA, in Q3 and Q4 2021, ‘severely finally distressed’ employers who have more than 500 employees may claim ERC for all employees. In this context, ‘severely finally distressed’ is defined by gross receipts for a quarter in 2021 falling below 10% of the corresponding quarter in 2019.
ERC are also available for businesses started after 15 February 2020, also known as ‘recovery start-up businesses. Under ARPA provisions, recovery start-up businesses are defined as businesses that have had up to $1 million in average annual gross receipts but that do not otherwise qualify for ERC. Recovery start-up businesses may claim up to $50,000 per quarter.
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