What Employers Need to Know About the American Rescue Plan
March 20, 2021
Last week Congress passed the $1.9 trillion American Rescue Plan (ARP) Act of 2021 and it was signed into law on Friday. The ARP also extends some of the Consolidated Appropriations Act, 2021 (CAA) provisions that were signed into law on December 27, 2020. Below are provisions that will impact employers.
- Direct Payments: The law includes stimulus payments of up to $1,400 to individuals; these payments are limited to those earning up to $75,000 or $150,000 for joint filers. The amount of the checks begins to phase down for individuals earning $80,000 ($160,000 jointly). These payments have no tax consequences for employees. For those who do not receive a payment, they may have a credit they can claim when filing next year.
- Unemployment Insurance (UIA): The law extends the federal “add-on” of $300 in weekly UI benefits through September 6, 2021. Under the CAA the extension was to expire last Sunday, March 14, 2021. The law also provides that the first $10,200 of UIA received in 2020 will be free of federal tax in 2021 (for workers earning less than $150,000 per year). Here in Michigan, if still in part-time or furlough mode, employees may apply for under-employment. The $300 weekly payment would line up with the 6-month, 25-week extension of the Federal Pandemic Unemployment Compensation (FPUC) and the Pandemic Emergency Unemployment Compensation (PEUC) programs. Claimants should be able to rollover remaining weeks from the CAA funded extensions (11 weeks) to the extended PUA 3.0 and PEUC 3.0 programs.
- FFCRA Leave: As of December 31,2020, employers were no longer obligated to provide the paid leave mandated by the FFCRA. But the CAA extended the tax credits available to employers for providing such paid leave to March 31, 2021 and allowed for employers who do so to be able to obtain a tax credit for payments made through March 31st. The American Rescue Plan Act extends this approach to employers with fewer than 500 employees to provide leave for certain COVID-related reasons; the cost of this leave is fully set off by way of refundable federal tax credits through September 30, 2021. The law also expands the leave for which reimbursed leave is permitted (such as obtaining a vaccination).
- COBRA Subsidies: COBRA is available for those employees with group health plans sponsored by employers with 20 or more employees in the prior year. Generally, those are employers that had at least 20 employees on more than 50% of its typical business days in the previous calendar year. Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time. The cost to employees who take COBRA is 102% (including a 2% administration charge). The Law provides 100% COBRA subsidies to those who have been laid off or had their hours reduced until the end of September. The bill also creates health care subsidies for unemployed workers who are ineligible for COBRA.
- Student Loans: The stimulus legislation means any student debt forgiven after Dec. 31, 2020, and before Jan. 1, 2026, won’t be taxed. The new provision will primarily affect borrowers who are on income-driven repayment plans. These are people whose monthly federal student loan payments are based on their incomes, and who pay back their loans over a period of 20 to 25 years. It is likely to see, based on this, a presidential forgiveness of at least $10,000 in student loan debt. Therefore, it may have negative impact on employers retaining these employees who may have stayed for the purpose of the debt payment programs.
- Child Tax Credit: The law temporarily increases the child tax credit for 2021, allowing 17-year-old children to qualify, and increasing the credit to $3,000 per child ($3,600 per child under age 6). The credit begins to phase out for individuals earning more than $75,000 or joint returns of $150,000. It is fully refundable, even for those who have not earned sufficient income, suggesting to some that it is a first step toward a universal basic income program. This program may arguably promote bigger families and thus knock out, at least at the lower income levels, a pipeline of potential workers.
- High Compensation Tax Deduction Restrictions: There are rules about deductions when a CEO and a handful of a company’s other top employees earn more than $1 million. The law doubles the number of officials to 10 that would be subject to that restriction. As a note, there were about $22 billion in tax increases included in the law.
- Multi-Employer Pension Relief: The law provides $86 billion to shore up approximately 185 failing multi-employer pension plans, ensuring that pensioners continue to receive their retirement benefits for the next 30 years.
The law adds to the Paycheck Protection Program and has provisions for gig economy workers. HR should discuss these provisions with legal counsel to see what impact it has on their operations and employee group, if any.