Payroll and Business Provisions of the American Rescue Plan Act

On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA) to address the continuing economic impact on employers and employees the Coronavirus (COVID-19) pandemic has posed. The legislation extends and expands provisions found in the Families First Coronavirus Relief Act (FFCRA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act 2021 (CAA).

FFCRA Paid Sick and Family Leave Credits

• The ARPA extends the FFCRA paid sick time and paid family leave credits from March 2021 through September 30, 2021.
• FFCRA is not mandated for 2021 as it was for certain employers in 2020, but an employer can voluntarily provide FFCRA benefits for 2021. If an employer provides FFCRA, then the employer is eligible to take the tax credit for the paid sick and family leave. 
• The ARPA provides that paid sick and family leave credits may each be increased by the employer's share of Social Security tax (6.2%) and employer's share of Medicare tax (1.45%) on qualified leave wages.
• The ARPA allows for the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only (1.45%), beginning after March 31, 2021.
• The ARPA permits the Treasury Secretary to waive the failure to deposit penalties on "applicable employment taxes" if the failure to deposit is due to an anticipated credit. "Applicable employment taxes" are defined as the employer's share of Medicare or Tier 1 RRTA tax. 
• The ARPA expands the paid family leave credit to allow employers to claim the credit for leave provided for the reasons included under the previous employer mandate for paid sick time.
• The ARPA permits the paid sick and family leave credit to be claimed by employers who provide paid time off for:
  • The employee to obtain the COVID-19 vaccination.
  • The employee is recovering from a condition, illness, or disability related to the COVID-19 vaccination.
  • 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. 
• The ARPA increases the paid sick and family leave credit by the cost of the employer's qualified health plan expenses and by the employer's collectively bargains contributions to a defined benefit pension plan and the amount of collectively bargained apprenticeship program contributions.
• The ARPA resets the 10-day (80 hours) limitation on the maximum number of days for which an employer can claim the paid sick leave credit with respect to wages paid to an employee beginning April 1, 2021.
• For the self-employed, the 10-day reset applies to sick days after December 31, 2020.
• The ARPA eliminates the requirement that the first two weeks of family leave be unpaid. If an employee qualifies for paid family leave, the employee is now eligible for a full 12 weeks of paid leave effective April 1, 2021.
• The ARPA resets the 12-week paid family leave bank for which the employer can claim the paid family leave credit with respect to wages paid to an employee beginning April 1, 2021.
• The ARPA increases the amount of wages for which an employer may claim the paid family leave credit from $10,000 to $12,000 per employee. The daily limitations per employee remain at $200 per day.
• Under ARPA, the number of days for which self-employed individuals can claim the paid family leave credit is increased from 50 to 60 days.
• The ARPA establishes a non-discrimination requirement where no credit will be permitted to any employer who discriminates in favor of highly-compensated employees, full-time employees, or employees on the basis of employment tenure.
• The ARPA clarifies that while no credit for paid sick and family leave may be claimed by the federal government or any federal agency or instrumentality, this would not apply to any organization described under Code Sec. 501(c)(1) and exempt from tax under Code Sec. 501(a), including state and local governments.

Employee Retention Credit (ERC)

• The ARPA extends the ERC from June 30, 2021, until December 31, 2021. The legislation would continue the ERC rate of credit at 70% for this extended period. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the CAA extension and the ARPA extension, this means an employer would potentially have up to $28,000 in credits per employee through 2021.
• The ARPA limits the ERC to $50,000 per calendar quarter of an eligible employer that is a "recovery startup business" as defined in Code Sec. 3134(c)(5). A "recovery startup business" is one that: (1) began operations after February 15, 2020, whose average annual gross receipts for a 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000, and (2) experiences a full or partial suspension of operations due to a governmental order or experiences a significant gross receipts decline.
• The ARPA allows the ERC to be claimed against Medicare (1.45%, Hospital Insurance - HI) taxes only. Since the employer/employee tax rate for Medicare is 1.45%, it could take longer to immediately claim the credit under the ARPA for the third and fourth quarters of 2021. Instead of just withholding the taxes immediately, it could be more likely that more employers would need to file Form 7200 (Advance Payment of Employer Credits Due to COVID-19). 
• The ARPA continues the year-over-year gross receipts decline requirement at 20%. The threshold for qualified wages (even if the employee is working) would continue to be 500 employees, as expanded by the CAA. Also, certain governmental employers would continue to be exempt from claiming the ERC, except certain tax-exempt organizations that would include colleges and universities or medical or hospital care providers. 
• The ARPA Requires the Treasury Secretary to issue guidance providing that payroll costs paid during the covered period would not fail to be treated as qualified wages to the extent that a covered loan under the Small Business Act is not forgiven. As with the expansion of the ERC under the CAA, this would continue to mean that Paycheck Protection Program (PPP) recipients would be eligible for the ERC if the loan did not pay the wages in question.
• The ARPA qualified wages paid by an employer taken into account as payroll costs under (1) Second Draw PPP loans; (2) shuttered venues assistance; and (3) restaurant revitalization grants are not eligible for the ERC.

Paycheck Protection Program (PPP) Modifications

• The ARPA allocates an additional $7.25 billion towards PPP funding. However, the application period has not been extended and remains March 31, 2021. 
• The ARPA Adds "additional covered non-profit entity" as an eligible non-profit eligible for First Draw and Second Draw PPP loans. An "additional covered non-profit entity" is an organization listed in Code Sec. 501(c) other than those Code Sec. 501(c)(3), Code Sec. 501(c)(4), Code Sec. 501(c)(6), or Code Sec. 501(c)(19). An "additional covered non-profit entity" is eligible for a PPP loan if: (1) the organization employs no more than 300 employees; (2) it does not receive more than 15% of its receipts from lobbying activities; (3) lobbying activities do not comprise more than 15% of the organization's total activities; and (4) the cost of lobbying activities does not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.
• The ARPA Adds the following to eligible entities for PPP loans: (1) Code Sec. 501(c)(3) non-profit and veterans' organizations with up to 500 employees; and (2) Code Sec. 501(c)(6) non-profit organizations (business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues); and (3) domestic marketing organizations with no more than 300 employees per physical location. 
• The ARPA adds internet-only news publishing and internet-only periodical publishers to businesses eligible for First and Second Draw PPP loans. To be eligible, the organization must employ no more than 500 employees.
• The ARPA provides that amounts used from First Draw and Second Draw PPP loans for premiums used to determine the credit for COBRA premium assistance as provided under Code. Sec. 6432 are eligible for loan forgiveness. See Pension and Benefits Related Provisions below for further information regarding COBRA.

Other Relief-Related Provisions

Restaurant revitalization grants - ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. The money will be available until expended. Eligible entities include restaurants or other specified food businesses and businesses operating in an airport terminal. It does not include a state or local government-operated business or a company that as of March 13, 2020, operates in more than 20 locations, whether or not the locations do businesses under the same name. It also does not include any business that has a pending application for or has received a grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act. The amount given to any business that fulfills the eligibility and certification requirements is $10,000,000 and is limited to $5,000,000 per physical location of the business. Grants may be used for: (1) payroll costs; (2) mortgage payments; (3) rent; (4) utilities; (5) maintenance expenses; (6) supplies; (7) food and beverage expenses; (8) covered supplier costs; (9) operational expenses; (10) paid sick leave; and (11) any other expense determined to be essential to maintaining the business.

Shuttered venue operators - CAA authorized grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues. ARPA appropriates $1,250,000,000 for fiscal year 2021 to help carry out these grants. The money will be available until expended. Governmental entities do not qualify.

Pension and Benefits Related Provisions

• The amount of taxable wage exclusion for dependent care benefits is increased from $5,000 to $10,500 for married couples filing jointly. The amount of excludable wages for married couples filing separately is $5,250. This increase applies to any taxable year beginning after December 31, 2020, and before January 1, 2022.
• Under ARPA, Assistance Eligible Individuals (AEIs) may receive an 85% subsidy for COBRA premiums paid during any period of COBRA coverage during the period beginning on April 1, 2021, and ending on September 30, 2021.
  • Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under Code Sec. 6402(a) and Code Sec. 6413(b). The quarterly credit may be paid in advance according to forms and instructions provided by the Department of Labor.
  • Group health plans must provide the following notices to AEIs: 
    1. Notice of assistance availability. Informs AEIs of the availability of the subsidy and the option to enroll in different coverage (if permitted by the employer). Must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021, and ending on September 30, 2021. This notice requirement may be met by amending existing notices or including a separate document along with them. Specific content requirements apply. 
    2. Notice of extended election period. Must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021.
    3. Notice of expiration of subsidy. Must be provided between 45 and 15 days before the date on which an individual's subsidy will expire unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare. 
  • Provision of these notices is required to meet COBRA's notice requirements. Within 30 days of enactment (by April 10, 2021), the Department of Labor is to issue model notices which can be used to notify eligible individuals of the availability of assistance and the availability of an extended enrollment period. Within 45 days, the Department is to issue model notices regarding the expiration of the subsidy.