The American Rescue Plan Act (ARPA) was signed by President Biden on March 11, 2021. The Act includes a wide variety of provisions designed to provide various areas of relief for individuals and businesses struggling due to COVID-19. The following information highlights the provisions relating to the ARPA.
100% COBRA Continuation Coverage Premium Subsidy for Individuals and their Families
The Act provides COBRA premiums for “assistance eligible individuals” to be subsidized by the federal government through payroll tax credits for a period of six months, beginning on April 1, 2021 and ending on September 30, 2021.
- What is the subsidy amount? 100% of the cost of premiums during the “Period of Coverage” timeframe of April 1, 2021 and when the subsidy is set to expire on September 30, 2021, subject to otherwise applicable maximum periods of coverage (typically 18 months) under COBRA.
- Who is eligible for the COBRA premium subsidy? Any “assistance eligible individual” who loses coverage due to an involuntary termination of employment or because of an involuntary reduction of hours, and who would otherwise be eligible during timeframe between April 1, 2021 and September 30, 2021.
- Individuals who lose coverage during Period of Coverage due to an involuntary termination of employment or because of a reduction of hours
- Individuals who lost coverage and did not elect COBRA but would otherwise have been eligible for the premium subsidy during Period of Coverage.
- Individuals who elected and terminated coverage prior to April 1, 2021 and who would otherwise be eligible for the premium subsidy.
- What does it mean to be an assistance eligible individual? Defined generally as including any employee or dependent who loses group health plan coverage due to an involuntary termination of employment or because of a reduction of hours.
- What is the maximum coverage period of COBRA premium assistance? For any assistance eligible individuals who are enrolled or enroll in COBRA due to this subsidy, the subsidy that will be in effect from April 1 to September 30 “Period of Coverage” will end earlier if the individual’s maximum period of COBRA coverage ends prior to September 30th, or if they become eligible for coverage under another group health plan or Medicare. It is important to note that individuals who fail to notify their group health plan if they become eligible for other coverage or Medicare will be subject to the greater of a $250 penalty or 110% of the premium subsidy provided after loss of eligibility.
- How does the special election period work? The Act also creates a special election period for any individual who did not elect federal COBRA continuation coverage but who otherwise would have been eligible for the COBRA subsidy and for any individual who elected federal COBRA continuation coverage and discontinued such coverage before April 1, 2021. These individuals will be able to elect COBRA coverage within 60 days of receiving the required employer notice. The resulting COBRA continuation coverage begins with the first period of COBRA continuation coverage beginning on or after April 1, 2021 – making the special election prospective instead of retroactive to what their original effective date for COBRA coverage or when their coverage originally lapsed.
- How do employers claim a credit for the subsidy amounts? Employers will obtain the subsidy that they must provide to assistance eligible individuals, through a payroll tax credit against employers’ quarterly taxes. If the credit exceeds the amount of payroll taxes due, the credit would be refundable when employers submit Form 941, their quarterly tax return. The credit could also be advanced under rules that will be set by the Treasury Department.
- How and when will assistance eligible individuals receive notice? The Act tasks the Department of Labor (DOL) and Internal Revenue Service (IRS) with issuing regulations and guidance on the COBRA subsidy provisions of the Act. In addition, the Act requires the DOL to produce model COBRA election notices within 30 days of enactment and a model COBRA premium subsidy expiration notice within 45 days of enactment.
Coordination of COBRA Premium Subsidy and Extension of COBRA Deadlines
Individuals who are eligible for the extended COBRA deadlines, clarified in guidance issued on February 26, 2021, will also be eligible for subsidy provisions if they meet the eligibility requirements as assistance eligible individuals. As a reminder, the COBRA extension deadline relief we refer to here provides that COBRA deadlines that otherwise would occur during the “outbreak period” (the period beginning March 1, 2020 and ending 60 days after the announced end of the presidentially declared national emergency) must be tolled until the earlier of one year from the date the deadline otherwise would have applied or the end of the outbreak period.
Temporary Increase to Dependent Care Flexible Spending Account Maximum Limit for 2021
Another provision included in the Act is the option for employers to increase the maximum amount that that may be contributed to an employee’s Dependent Care FSA from $5,000 ($2,500 married filing separately) to $10,500 ($5,250 married filing separately). Retroactive amendments will be permitted if an amendment is adopted by the last day of the 2021 plan year and the plan is administered consistently with the terms of the amendment beginning on its effective date. This relief will be in addition to the optional unlimited carryover and/or extended grace period from the relief enacted on December 27, 2020 under the Consolidated Appropriations Act, 2021.
Temporary (Optional) Extension of FFCRA Tax Credits for Paid Sick and Family Leave
- Employers who voluntarily choose to provide eligible employees with Emergency Paid Sick leave or Emergency Family Medical Leave from the previous optional extension date of 3/31/2021 has been extended to 9/30/2021.
- Sick and family leave credit for optional paid leave between 4/1/2021-9/30/2021 is now exempt from employer Medicare and OASDI taxes on qualified leave wages. Previously the employer Medicare tax was taken as a credit after the employer Medicare tax was calculated.
- Amount of wages eligible for paid family leave credit will increase to $12,000 per employee.
- The leave for which a credit can be claimed includes time off for a COVID-19 vaccine or to recover from a vaccine-related illness or injury.
- The ten-day per employee limit on claiming the credit resets 4/1/2021.
Extension of the Employee Retention Credit
- ARPA further extends the ERTC through 12/31/2021.
- The ERTC is applicable to Medicare and OASDI taxes on qualified wages.
- The ERTC is not available for payroll costs included in PPP, shuttered venue grants, and restaurant revitalization grants.
Paycheck Protection Program
- Additional funding has been provided for the PPP.
- Congress is considering a further extension of time to apply for a PPP loan; currently, the deadline remains March 31, 2021.
If you have any questions, please contact your customer service representative.
