American Rescue Plan Act of 2021 (ARPA): How It Impacts Businesses

At Skytale Group, we want business owners to understand the nuances of new legislation and how we can help. As of January 2021, President Biden unveiled the American Rescue Plan Act (ARPA) to “change the course of the pandemic, build a bridge towards economic recovery, and invest in racial justice.” The $1.9 trillion plan offers COVID-19 pandemic-related economic relief, unemployment supplements, funding for state and local governments, vaccine delivery promotion, and stimulus checks. Below are several new implications of the ARPA and what they mean for you.

ARPA Subsidized Health Coverage (COBRA): April 1, 2021–September 30, 2021

The ARPA includes a subsidy that covers 100% of COBRA premiums for the period beginning April 1, 2021, through September 30, 2021. It is for eligible individuals who have state or federal continuation of coverage rights after an involuntary termination or reduction in hours.

How does this impact employers?

  • Employers will pay the full premium to the carrier for fully insured plans or pay to cover them on a self-insured plan.
  • Employers can recover premiums with a refundable payroll tax credit against Medicare.
  • If you offer health insurance and have to terminate an employee for reasons other than gross misconduct, work with your health insurance carrier to ensure you are providing required notices. Contact us so we can help you ensure your payroll company applies for your tax credits.

How does this impact COBRA-eligible/Continuation of Coverage individuals?

  • The affected beneficiaries will pay nothing during the subsidy period.
  • Anyone involuntarily terminated from employment or involuntarily experienced a reduction in hours will have the option to enroll prospective as of April 1, 2021.

ARPA Expanded Paid Sick and Family and Medical Leave: April 1, 2021–September 30, 2021

The ARPA extends tax credits for employer-provided paid sick and family leave. The credits were established by the Families First Coronavirus Response Act (FFCRA) and extended through September 30, 2021. It also increases the wages covered by the paid family leave credit to $12,000 per employee (originally $10,000). Additionally, it resets the 10-day limit starting April 1, 2021, for employers claiming the credit for paid sick leave provided to their employees.

Providing this paid sick leave is still voluntary as of January 1, 2021. Unless otherwise mandated in your local jurisdiction, employers are not required to provide paid sick or family leave for COVID-19-related reasons. Beginning April 1, the paid sick leave credit can be taken for paid leave provided to employees for additional reasons:

  • To obtain a COVID-19 immunization
  • To recover from an illness or condition related to the immunization
  • For employees seeking or awaiting results of a diagnostic test for, or a medical diagnosis of, COVID-19 and was either exposed to COVID-19 or the employer requested such test or diagnosis

How does this impact employers?

  • Originally, employees could only take expanded family and medical leave if their child’s school or daycare was closed or unavailable. ARPA expands the paid expanded family and medical leave credit to allow employers to claim the credit for leave provided for any of the reasons under the previous employer mandate for paid sick time. Now, employees can take up to 12 weeks of paid leave for any of the reasons listed in the FFCRA notice, plus the newly added reasons.
  • Additionally, ARPA increased the amount of wages for which an employer may claim the paid family and medical leave credit from $10,000 to $12,000 per employee. This is because the initial 2 weeks can now be paid at 2/3 pay, up to the stated limits, whereas before the first two weeks were unpaid.
  • Keep us informed of any situation where someone cannot work due to a COVID-19-related reason. We can address each situation with you as they arise.

Employee Retention Credit: June 30, 2021–December 31, 2021

The ARPA extends Employee Retention Credit (ERC) through December 31, 2021. After June 30, 2021, the ERC offsets the employer’s share of Medicare tax.  All changes to the ERC are effective for quarters after June 30, 2021.

How does this impact employers?

  • The ARPA continues the CAA revised credit rate of 70% up to $10k of wages per employee per quarter. This means an employer could potentially have a $28k credit per employee through 2021.
  • Startups launched after February 15, 2020, with annual gross receipts of up to $1 million do not meet the ERC eligibility requirements. Startup ERC is capped at $50,000 per quarter per employer and is calculated under regular ERC rules.
  • Additional provision is offered for “severely financially distressed employers.” It lets them treat all wages paid to employees as qualifying wages, regardless of the number of full-time employees. For the purposes of the bill, to fall into this category an employer must have experienced a gross receipts reduction of more than 90 percent as compared to the same quarter in 2019.
  • In our scheduled financial meetings, we will continue to review your eligibility for the tax credit.  We will then work with you to ensure your payroll company is applying for the credit on your behalf.