Benefit News

Employee Benefit Provisions in the American Rescue Plan Act

March 15, 2021

President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) into law on March 11, 2021. Along with providing financial relief for individuals, state and local governments, schools, businesses and for other purposes, the law contains the following measures of special interest to employers and their employees:

  • A subsidy for COBRA premiums, funded through employer tax credits;
  • Extension of employer tax credits for FFCRA employee leave voluntarily provided through Sept. 30, 2021;
  • Expansion of employee earnings eligible for the FFCRA tax credit;
  • Inclusion of testing and immunization as reasons for FFCRA leave;
  • Extension of $300 increase in weekly unemployment benefits;
  • Extension of weekly unemployment benefits for workers who otherwise wouldn’t qualify for these benefits;
  • Expansion of subsidy for ACA premiums;
  • Increase in DCAP contribution limits to $10,500 for the 2021 plan year;
  • Extension and expansion of the employee retention tax credit;

Employers should review the ARPA’s provisions to identify any requirements and opportunities that apply to them. Employers are also advised to watch for official guidance on the implementation of the law.

COBRA Subsidy

The ARPA provides a 100% subsidy of COBRA premiums from April 1, 2021 – September 30, 2021 (this includes medical, dental and vision). The subsidy is available to employees and their family members who lost health insurance due to an involuntary termination or a reduction in hours (but not in the event of a voluntary termination of employment, retirement or death).

More specifically, the following individuals are eligible for the subsidy during the subsidy period:

  • Those who experience a qualifying event between April 1, 2021 and September 30, 2021.
  • Those who experienced a qualifying event prior to April 1, 2021, but who had existing COBRA on April 1, 2021.
  • Those who experienced a qualifying event prior to April 1, 2021 and are still within the COBRA continuation period despite not having elected COBRA when the triggering event first occurred.
  • Those who elected COBRA but discontinued COBRA coverage before April 1, 2021 and are still in the COBRA continuation period as of April 1, 2021.

Any COBRA continuation coverage elected by an eligible individual is a prospective election and coverage will start with the first period of coverage beginning on or after April 1, 2021. However, coverage will not extend beyond the maximum continuation period for the triggering event.

Moreover, the ARPA creates a plan enrollment option where an employer may allow eligible employees to elect to enroll in a different group health plan. Specifically, after notice of the enrollment option is provided, these employees would have up to 90 days to make this election; however, the premium for the alternative coverage choice cannot exceed the premium for the individual’s existing COBRA continuation coverage (and must also be offered to active employees).

The subsidy is no longer available to an individual once they become eligible under another group health plan (such as a plan through a spouse) or Medicare.

The subsidy is funded by the federal government through a refundable payroll tax credit against quarterly taxes. This credit will be available to the employer, the plan sponsor or the insurer depending upon the plan’s structure.

Plan administrators are required to send out special notices to eligible individuals by May 31, 2021, to inform them of the available subsidy. The COBRA general election notice will need to include information on the availability of the premium subsidy for those eligible during the subsidy period as well as any applicable option to enroll in different coverage if permitted by the employer. Plan administrators are also required to send out notices to enrollees when the subsidy is about to expire. The DOL has been directed to issue model notices for these purposes.

FFCRA Leave

The Families First Coronavirus Response Act (FFCRA), passed in March 2020, provided a tax credit for employers to fund two types of paid employee leave required by the law. These leave requirements expired in December 2020. However, the tax credits were extended through March 31, 2021, for employers that chose to continue to provide FFCRA leave beyond December 31, 2020.

The ARPA extends the FFCRA employer tax credit for voluntarily provided leave through September 30, 2021 and adds employee time off related to COVID-19 testing and immunization as permissible reasons for taking the voluntary leave. It also increases the amount of wages eligible for the family leave credit from $10,000 to $12,000 per employee, and it provides an additional 10 days of voluntary emergency paid sick leave for employees, beginning April 1, 2021.

UNEMPLOYMENT

The ARPA extends three pandemic-related federal unemployment programs that were otherwise scheduled to end in March or April 2021. These include:

  • Pandemic Unemployment Assistance, which provides weekly benefits to independent contractors, self-employed individuals and other workers who would typically not be eligible for unemployment benefits;
  • Pandemic Emergency Unemployment Compensation, which provides weekly benefits to individuals who have exhausted their eligibility for all other unemployment benefits; and
  • Federal Pandemic Unemployment Compensation, which provides an additional $300 weekly payment to individuals who are already receiving PUA, PEUC or regular unemployment benefits.
  • Under the ARPA, all of these benefits are now available through September 6, 2021. The ARPA also changes how unemployment benefits received in 2020 are taxed. Specifically, it exempts the first $10,200 from federal income tax for each spouse in households with under $150,000 in adjusted gross income.

ACA

The ARPA temporarily increases the dollar amount and expands eligibility for federal subsidies for health insurance coverage purchased through the Affordable Care Act (ACA) Exchanges. Currently, the ACA’s premium tax credits are not available to individuals with income at or above 400% of the federal poverty level. The ARPA temporarily eliminates this income cap on these subsidies for a period of two years.

The law also:

  • Limits the total amount a household would be required to pay for health coverage through the Exchanges to 8.5% of their household income;
  • Increases the federal subsidy amounts available for lower-income individuals, eliminating premium costs completely for these individuals in some cases; and
  • Includes additional federal funding intended to encourage states that did not previously expand their Medicaid programs to do so now.

These ACA changes are temporary and will expire after a period of two years.

DCAP

For taxable years beginning after December 31, 2020, and before January 1, 2022, the ARPA increases the annual contribution limit for a dependent care assistance program (DCAP) from $5,000 to $10,500 (and from $2,500 to $5,250 for married individuals filing taxes separately).

Employers with DCAPs can retroactively amend their plans to incorporate this increase, if the amendment is adopted by the last day of the plan year in which it is effective; and the plan operates consistently with the terms of the amendment until it is adopted.

Employee Retention Tax Credit

The ARPA extends the employee retention credit through the end of 2021 (the credit was set to expire in June 2021). This credit was originally enacted with the Coronavirus Aid, Relief and Economic Security (CARES) Act to encourage employers to retain on their payroll employees who could not report to work because of COVID-19-related reasons.

New features of this credit include:

  • Some small startups that began operating after February 15, 2020, will be eligible for a maximum credit of up to $50,000 per quarter even if they do not experience an eligible decline in gross receipts, or a full or partial suspension; and
  • A new provision for “severely financially distressed” employers will begin in the third quarter of 2021. The provision will allow employers of any size to count all wages toward the $10,000 cap.

For additional information, please contact your Burnham Consultant or Burnham, A Baldwin Risk Partner at 949‐833‐2983 or inquiries@burnhambenefits.com.


Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

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