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The American Rescue Plan Act of 2021 Further Extends Employee Benefits in the Wake of COVID-19

With a $1.9 trillion price tag , the Rescue Act extends certain tax credits enacted in prior stimulus packages and also introduces changes in law that provide direct infusions of cash to state governments and stimulus checks to qualifying American taxpayers.
March 22, 2021
The American Rescue Plan Act of 2021 Further Extends Employee Benefits in the Wake of COVID-19

The American Rescue Plan Act of 2021 Further Extends Employee Benefits in the Wake of COVID-19 

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Rescue Act”) – the federal government’s fifth piece of legislation enacted since March 2020 to combat the effects of the COVID-19 pandemic on the U.S. economy and American families. With a $1.9 trillion price tag (even larger than the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act enacted in March 2020), the Rescue Act extends certain tax credits enacted in prior stimulus packages and also introduces changes in law that are beyond the scope of this Alert but that, in sum, provide direct infusions of cash to state governments and stimulus checks to qualifying American taxpayers. Similar to the Consolidated Appropriations Act (the “CAA”) enacted into law on December 27, 2020, the Rescue Act:

  • expands enriched employee retention credits, which were originally made available through December 31, 2020 under the CARES Act and extended through June 30, 2021 under the CAA, for wages paid by qualifying employers through December 31, 2021;
  • extends tax credits to employers that were covered by the Families First Coronavirus Response Act (the “FFCRA”), the federal government’s initial legislative response to the COVID-19 pandemic in March 2020, through September 30, 2021;
  • as a new benefit not included in the CAA, provides eligible individuals who have been involuntarily terminated or laid off or suffered a material reduction in hours continued group health benefits without having to pay COBRA premiums from April 1, 2021 through September 30, 2021; and
  • renews federal unemployment assistance at a rate of $300 per worker per week through September 6, 2021.

Extension of Employee Retention Credit (ERC) Through December 31, 2021

For a refresher on the original terms of the employee retention credit (the “ERC”) under the CARES Act and the extension of the ERC through June 30, 2021 under the CAA, see our Legal Alerts on the ERC, which were published on April 6, 2020, May 6, 2020, and January 2021.

Under the Rescue Act:

  • The ERC is available to employers that qualify under conditions set forth in the CAA (in general, based on a whole or partial government suspension of operations or a qualifying decline in gross receipts for the applicable calendar quarter). Special ERC qualifying rules apply to certain startup businesses established after February 15, 2020 with annual gross receipts of up to $1 million.
  • The ERC is extended as a refundable credit against qualifying employment tax liabilities equal to 70% of up to $10,000 in qualifying wages per employee paid during each of Q3 and Q4 2021, meaning a $14,000 maximum per-employee ERC for the second half of 2021 (in addition to the $14,000 maximum per-employee ERC for the first half of 2021 under the CAA and the $5,000 maximum per-employee ERC for wages paid from March 12 - December 31, 2020 under the CARES Act).
  • “Severely financially distressed employers” (i.e., 500-employee-plus employers during 2019 with a decline of greater than 90% in gross receipts compared to the same quarter in 2019) may treat all wages paid to employees as qualified wages in Q3 and Q4 2021, regardless of the number of full-time employees.
  • Consistent with the CAA, Paycheck Protection Program (“PPP”) loan participants (originally disqualified from claiming the ERC under the CARES Act) can claim the ERC for the July 1, 2021 – December 31, 2021 wage period under the Rescue Act so long as the funds used to pay qualifying ERC wages do not originate from forgiven PPP loan funds.

Continued FFCRA Paid Leave Tax Credits Through September 30, 2021

As discussed in our January 18, 2021 alert, the FFCRA expanded paid leave benefits by requiring employers of fewer than 500 employees to provide up to 12 weeks of job-protected leave (ten of which were required to be paid) and up to 80 hours of emergency paid sick leave, in each case, to employees for a purpose relating to COVID-19. Both paid leave obligations expired on December 31, 2020, but the CAA extended the tax credits available to employers under the FFCRA to cover such benefits voluntarily provided through March 31, 2021.

The Rescue Act now extends those same tax credits to benefits provided through September 30, 2021 and provides that tax credits will be available to employers voluntarily providing paid sick leave and/or paid family leave to employees for the additional qualifying reasons:

  • the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and the employee was exposed to COVID-19, or the employer requested the test or diagnosis;
  • to obtain immunization related to COVID-19; and/or
  • while recovering from any illness or condition related to such immunization.

COBRA Premium Assistance

The Rescue Act provides that, for coverage periods between April 1, 2021 and September 30, 2021, COBRA continuation premiums for “assistance eligible individuals” (“AEI’s”) must be subsidized in full by an employer maintaining an insured or self-insured group health plan. An AEI is generally defined as an employee or other qualified beneficiary who is eligible for COBRA continuation coverage by reason of an involuntary employment termination or reduction in hours and elects coverage to remain on the employer’s group health plan.

The Rescue Act requires employers to send notices referencing the new relief under the Rescue Act to AEI’s by no later than May 30, 2021, among other notification requirements. The federal government is required to issue model notices by mid-April 2021.

Employers may receive tax credit for COBRA premium subsidies provided under the Rescue Act through their federal employment Form 941 return. The maximum credit per quarter is limited to the Medicare payroll taxes for that quarter. Any excess will be refunded by the IRS to the employer.

Continued Funding of Extended Unemployment Compensation

The Rescue Act continues Federal Pandemic Unemployment Compensation supplements (at a rate of $300 per worker per week) for weeks of unemployment beginning March 15, 2021 and ending September 6, 2021 and also increases the number of weeks of unemployment benefits an individual may claim from 50 to 79. The Rescue Act also makes the first $10,200 in unemployment benefits that were received in 2020 non-taxable for individuals whose adjusted gross income for 2020 was less than $150,000.

This Alert contains general information and does not constitute legal advice. Employers are advised to consult with their labor and employment counsel to determine how the Rescue Act impacts their workforce or to any particular situations.

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For any questions about this Alert, you may contact:

Pantea Lili Ahmadi, Senior Corporate & Employment Counsel | pahmadi@ep.com

Scott Bishop, Vice President, Employment Law | sbishop@ep.com

Joe Scudiero, Senior Vice President & Chief Labor Counsel | jscudiero@ep.com

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