The third major federal COVID-19 relief package, the American Rescue Plan Act of 2021, was signed into law March 11.
While Connecticut employers can expect a great deal of regulations and guidance as the government implements this legislation, below are key employment and related tax aspects that are important for businesses to know.
The relief package includes 100% governmental subsidies of COBRA premiums from April 1 through Sept. 30, 2021.
For assistance-eligible individuals (those involuntarily terminated or with reduced hours) who elect COBRA, employers are required to advance premiums in full and may then claim credits on their quarterly payroll tax returns (Form 941).
Administration of this temporary benefit is expected to be challenging.
The law requires employers or their COBRA administrators to provide employees and family members special notices of eligibility as well as approaching end dates of their periods of premium assistance.
The U.S. Department of Labor will publish model notices to help employers comply, but it may take several weeks for such notices to be published.
In addition, in Disaster Relief Notice 2021-01, the DOL announced its position that the previously announced one-year extensions for employees to elect and make COBRA payments are to be applied on an individual basis.
Therefore, employees and family members who did not elect COBRA since March 2020 may now have the opportunity to enroll and obtain a 100% subsidy for coverage for the period of April 1 through Sept. 30, and employers will be obligated to identify and notify such individuals of this special enrollment opportunity.
Paid Leave Tax Credits
The act extends the period during which tax credits are available to eligible employers (under 500 full time employees) that voluntarily provide paid sick and family leave after March 31, 2021.
This is similar to the tax credit which was available to employers when the leave was temporarily mandated under the 2020 Families First Coronavirus Response Act.
Availability of the credit, but not the mandate, was previously extended to March 31, 2021 under the Consolidated Appropriations Act, 2021.
The tax credit is refundable and initially applied against the Medicare portion of employers’ FICA taxes (1.45%) for qualified wages paid for the period beginning April 1, 2021 and ending Sept. 30, 2021.
Among other enhancements, qualifying wages for both paid sick and family leave now include paid time off given to employees to obtain a COVID-19 vaccination, as well as recovery from any illness related to the vaccine.
The paid sick leave extension provides a reset of the 80 hours limit for wages paid after March 31, 2021. The maximum paid family leave wage amount per employee is increased to $12,000 (from $10,000).
Employee Retention Credit
The Employee Retention Credit (originally established last year by the CARES Act) is extended from June 30, 2021 to Dec. 31, 2021.
The credit is equal to 70% of the qualified wages that do not exceed $10,000 for any calendar quarter. Thus, the total credit per employee is limited to $7,000 per quarter.
Eligible employers are those whose trade or business is fully or partially suspended during the calendar quarter due to orders from the government due to COVID-19, or whose gross receipts are less than 80% for the same calendar quarter in 2019.
For purposes of the ERC, qualified wages are determined differently for large (more than 500 full time employees in 2019) versus small employers (500 or less full time employees in 2019).
There are also rules governing the interaction of PPP loans and the definition of qualified wages.
Similar to the continuing paid and sick leave credit, the ERC will be claimed by employers against their portion of the Medicare tax, 1.45%.
The relief package extends three federally funded unemployment programs initially created by the CARES Act through Sept. 6, 2021:
- Pandemic Unemployment Assistance: Covering individuals not typically qualifying for state unemployment benefits, such as independent contractors and gig workers.
- Federal Pandemic Unemployment Compensation: Providing unemployment recipients a $300 weekly benefit over and above state benefits.
- Pandemic Emergency Unemployment Compensation: Extending benefits for the long term unemployed.
The act similarly continues the Extended Benefits program, as amended under the 2020 FFCRA, through Sept. 6, 2021, allowing for individuals in high unemployment states to receive additional unemployment benefits after exhausting PEUC.
In addition to the extended federal unemployment benefits, the act also provides retroactive tax relief to those who have been receiving unemployment benefits, which are normally subject to federal income tax.
Under the legislation, individuals who had adjusted gross incomes of less than $150,000 in 2020 are eligible to exclude up to $10,200 of unemployment compensation received from their 2020 gross income.