On March 11, 2021, President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. The law expands current COVID-19 relief programs and offers significant financial funding at the individual, state and local government, and business levels. Additionally, there are several measures that are particularly relevant to employers and employees that will affect your non-profit organization.
Last year’s Family First Coronavirus Response Act (FFCRA) offered tax credits for employers that helped fund two types of paid employee leave. Initially these credits expired Dec 31, 2020. With ARPA, however, there is now an extension of employer tax credits available for FFCRA employee leave that is voluntarily provided through September 30, 2021. The credits also now apply in instances where an employee needs leave for COVID-19 testing or immunization.
In addition to this credit expansion for employers, the legislation also expands the employee earnings that are eligible for the FFCRA tax credit from $10,000 – $12,000. Finally, it affords employees an additional 10 days of voluntary emergency paid sick leave, starting April 1, 2021.
COBRA Subsidies and Unemployment Benefits
In instances where your organization has been forced to terminate or decrease hours for employees, there are two relevant areas of concern.
First, ARPA now allows for a 100% subsidy of COBRA premiums from April 1, 2021 through September 30, 2021. If the employees had originally declined COBRA—or enrolled and then dropped it—they are still eligible to elect it now. The funding for the subsidy comes through a refundable payroll tax credit from the federal government. The employer will pay 100% of the COBRA costs and if the payroll tax credits exceed payroll taxes, then the amount will be paid to the employer as a refund of an overpayment. The Department of Labor will also provide model notices to plan administrators for the updated employee notice requirements.
Second, three pandemic-related federal unemployment programs were extended so that they no longer expire in March or April 2021, but rather are available through September 6, 2021.
1. Any independent contractors, self-employed individuals, or other workers who wouldn’t normally qualify for unemployment, may now apply for weekly unemployment benefits under Pandemic Unemployment Assistance (PUA).
2. If an individual has already exhausted their eligibility for all other available unemployment benefits, they may apply for Pandemic Emergency Unemployment Compensation (PEUC.
3. Federal Pandemic Unemployment Compensation offers an additional $300/week in benefits to anyone who is receiving any unemployment benefits.
Dependent Care Assistance Program (DCAP)
More commonly, this is referred to as a dependent care FSA, for employees who choose to participate in their employer-offered plan. ARPA increases the contribution limit for a DCAP from $5,000 to $10,500 for couples for taxable years beginning after December 31, 2020 and prior to January 1, 2022. The amount for married individuals filing separately increases from $2,500 to $5,250.
As an employer, you can retroactively amend your plans in order to account for this increase as long as the amendment is adopted by the last day of the plan year it is effective for.
Employee Retention Tax Credit
The new legislation extends the employee retention tax credit through the end of the year, rather than having it expire in June 2021 (as provisioned in the CARES act). This continues the ERC credit rate of 70%. The legislation allows for up to $10,000 in qualified wages per quarter. In the third quarter, a new provision for “severely financially distressed” employers will begin, allowing employers of any size to count all wages towards the $10,000 limit. Another expansion to this tax credit is that some small startups (any “recovery startup business”) that started operation after February 15, 2020 are eligible for up to $50,000 per quarter. Code Sec. 3134(c)(5) of the Act details the definition of a recovery startup business.
Expansion of ACA Premium Subsidy
Although this may not be as relevant to your non-profit, the ARPA also temporarily expands eligibility (the income cap for eligibility is eliminated) and increases federal subsidy amounts for lower-income individuals. The law also limits the total amount a household would pay for insurance through their Exchange to no more than 8.5% of their household income.
If you are interested in additional support in understanding and utilizing the latest tax credits and guidance for your non-profit organization, call us at 312-967-6100 or contact us online today.