After a months-long legislative process, the Senate version of the American Rescue Plan (ARP) was passed in the House earlier this week and signed into law by President Biden yesterday.
We’ve been busy evaluating the implications for your business. As always, we want your options to be as clear as possible, so you can make the right decisions to protect your business and take care of your team. Here’s what you need to know:
Your Guide to Navigating COVID-19
Use our guide to to answer common questions and keep your team safe and informed about COVID-19.
Employee Retention Tax Credit Extended
Last year, the CARES Act created two main tax relief opportunities for eligible employers: the employer Social Security tax deferral and the Employee Retention Tax Credit (ERTC).
The Social Security tax deferral ended on December 31, 2020. Employers that took advantage of the deferral throughout 2020 are required to repay the deferred tax amounts, with 50% of the deferred amount due on December 31, 2021, and the remainder due by December 31, 2022.
The ARP extends the Employee Retention Tax Credit (ERTC) through December 31, 2021. Previously, these credits were set to expire on June 30, 2021.
The new law also creates a period of special eligibility for ERTC to expand access to certain types of companies. Starting on July 1, 2021:
Small startups (defined as businesses formed after February 15, 2020) can qualify even if they do not meet the normal qualification rules regarding closure and/or decline in gross receipts, subject to certain caps and other restrictions.
Severely distressed large employers (defined as having 500+ employees and a decline of over 90% in gross receipts) can qualify for the full scope of the tax credit, including credits for employees who continue to work, which are otherwise reserved for eligible companies with fewer than 500 employees.
Also after July 1, 2021, for all businesses, ERTC must be taken against Medicare taxes instead of Social Security.
Otherwise, rules regarding eligibility and maximum benefit amounts remain largely consistent with the updates to ERTC made in the December 2020 Consolidated Appropriations Act.
Back in February, we launched updates in Justworks to the Employee Retention Tax Credit (ERTC) system for Q1 and Q2 of 2021. Eligible customers can opt in to claim these credits in-app. For more info, you can visit our Help Center article on ERTC. Stay tuned for an update allowing you to opt-in for the Q3 and Q4 credits newly authorized by the ARP.
FFCRA Leave Credits Extended
The American Rescue Plan also extends tax credits for paid sick and paid family leave taken for specific COVID-19-related reasons. These credits were first created under the Families First Coronavirus Response Act (FFCRA) and were set to expire on March 30, 2021. The new law extends FFCRA leave credits for two more quarters until September 30, 2021.
Here are some other changes to FFCRA starting April 1, 2021, to be aware of:
FFCRA use caps will reset effective that date
Qualifying reasons for leave will expand to cover circumstances related to diagnostic testing and vaccination
The aggregate cap on qualified wages will increase from $10,000 to $12,000
New FFCRA credits will be taken against Medicare taxes instead of Social Security
Finally, the original mandate requiring employers to pay employees on FFCRA leave expired on December 31, 2020 and was not extended under the December 2020 Consolidated Appropriations Act or the American Rescue Plan. To receive new credits up to the applicable caps, employers can voluntarily continue to pay employees on leave for the specific COVID-19-related reasons covered under FFCRA, as part of their company policy, but are not required to do so.
However, the ARP does add new non-discrimination rules to FFCRA. These provide that no tax credit is available if the employer, in determining the availability of paid leave, discriminates in the provision of paid leave in favor of its highly compensated employees, full-time employees, or employees on the basis of tenure with the employer.
We’ve updated the FFCRA leave tool for Q1 in the COVID-19 Relief Center in Justworks. You can learn more about placing employees on FFCRA leave in our Help Center article. Stay tuned for additional updates allowing you to claim FFCRA credits during Q2 and Q3.
Additional Funding for the Paycheck Protection Program
Topline, the American Rescue Plan replenishes the Paycheck Protection Program (PPP) loan program with an additional $7.25 billion for small businesses seeking a first- or second-draw loan.
Eligibility-wise, the PPP remains mostly the same for first-draw loans. Businesses that meet the SBA’s “small business concern” definition, as well as businesses with up to 500 employees, are eligible (subject to affiliation rules).
To qualify for a second-draw loan, a component of the PPP first authorized under the December 2020 Consolidated Appropriations Act, companies must have 300 or fewer employees and provide documentation of a 25% reduction in gross receipts in 2020.
The American Rescue Plan newly authorizes special access to first- or second-draw PPP loans for certain nonprofit organizations and internet-only news and periodical publishers with 500 employees or less per physical location.
We’ve updated the PPP report in Justworks to support new PPP applications based on the latest legislative changes. You can learn more in our Help Center article.
The deadline to apply for a first- or second-draw PPP loan remains March 31, 2021.
New in the American Rescue Plan is a 100% subsidy on COBRA premiums for coverage between April 1 and September 30, 2021, for eligible individuals. Terminated employees or employees who had their hours decreased involuntarily due to covid are eligible.
The COBRA subsidy will be funded through tax credits. We are still reviewing the full requirements of the final legislation and expect additional regulatory guidance. Once we have more information, we will update you.
The ARP also provides an extended COBRA election period for individuals not currently enrolled in COBRA but who would have been eligible for the subsidy had they elected at the time of their COBRA qualifying event. This also includes individuals who elected COBRA coverage but discontinued such coverage before April 1, 2021.
Other Key Provisions
The ARP will provide $1,400 stimulus payments to qualified individuals and a $300 federal supplement to state unemployment insurance payments through September 6, 2021. It also makes a portion of an individual’s unemployment insurance income non-taxable.
The ARP also creates a $28.6 billion Restaurant Revitalization Fund (RRF) which will provide grants to struggling restaurants.
Finally, under the ARP, employers may also increase 2021 Dependent-Care FSA limits from $5,000 to $10,500 for families filing jointly and from $2,500 to $5,250 for those filing separately.
We’ve Got Your Back
The information here is not a comprehensive recap of all that is included in the American Rescue Plan. It covers the updates we believe are most relevant to the small business community who may be leveraging or hope to leverage available relief.
We will continue to update this post as things change and more information is made available. In the meantime, you can find more about government and other COVID-19 programs via the DOL, IRS, SBA, Department of Treasury, CDC, and WHO as they make updates. You should also consult your tax professional or legal counsel to discuss your specific situation.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.