Recently, the third significant federal stimulus package aimed at mitigating the economic effects of the COVID-19 pandemic became law. Known as the American Rescue Plan Act of 2021, the $1.9 trillion law contains several provisions of relevance to employers, particularly in the area of tax credits. It’s important for employers to become familiar with the law’s key provisions to stay compliant and take advantage of the benefits offered in the legislation.
COBRA continuation subsidy and payroll tax credit
The new law provides COBRA premium assistance in the form of a subsidy to individuals who have lost workplace insurance due to involuntary separation or involuntary reduction in hours. For individual employees who qualify, this means eligibility to receive a subsidy equal to 100% of their COBRA premiums from April 1, 2021, through Sept. 30, 2021.
For employers subject to COBRA or who have a self-insured benefit plan, it means eligibility to receive a refundable payroll tax credit, against employer-side Medicare tax, in an amount equal to the employee’s subsidy.
In sending required COBRA notices to participants, employers must include information on the new premium subsidy. The Department of Labor will issue model notices that employers may use.
FFCRA paid leave tax credit
The new law extends the Families First Coronavirus Response Act (FFCRA) payroll tax credit from April 1, 2021, through Sept. 30, 2021, for businesses that voluntarily offer pandemic-related paid sick leave (PSL) to employees. However, the following changes also take effect:
- The credit switches from the employer portion of Social Security tax to employer-side Medicare.
- The maximum amount of the employer’s Family and Medical Leave Act (FMLA) tax credit increases from $10,000 to $12,000.
- Beginning April 1, another 10 days will be added to the total amount of FFCRA emergency PSL available to employees.
- Beginning April 1, employees may now take emergency FMLA for any reason they may take emergency PSL, if their employer chooses to continue providing FFCRA leave to employees.
- Employers may now receive FFCRA tax credits for providing paid leave to employees receiving a COVID-19 vaccination or recovering from injury or illness related to a COVID vaccination.
The law requires FFCRA paid leave be provided on a nondiscriminatory basis so that the provision of leave does not favor highly- compensated employees, full-time employees or employees on the basis of employment tenure with the employer. It also makes the credit available to governmental employers outside the federal government. These changes are applicable for calendar quarters after March 31, 2021.
Employee retention tax credit
The new law extends availability of the Coronavirus Aid, Relief, and Economic Security (CARES) Act employee retention tax credit (ERTC) from July 1, 2021, through Jan. 1, 2022. Much like the FFCRA paid leave tax credit, the ERTC changes from an employer-side Social Security credit to an employer-side Medicare credit. This change is applicable for calendar quarters after June 30, 2021.
Additionally, the law adds a new category of business eligible for the credit, a “recovery startup business.” A recovery startup business is an employer who:
- began carrying on a trade or business after Feb. 15, 2020
- did not have average gross receipts exceeding $1 million for said business during the three-year taxable period ending with the taxable year which precedes the calendar quarter for which the credit is being claimed
- did not experience a full or partial shutdown due to governmental order or a significant decline in gross receipts for the calendar quarter for which the credit is being claimed
Beginning July 1, the law also allows severely financially distressed businesses to claim the credit on all wages paid, regardless of employer size. A severely financially distressed business is defined as one that experienced a decline in gross receipts of more than 90%.
As always, Paycom is here to help you not only understand these provisions, but also get the most out of them. With digital tools like Payroll Tax Management and Government and Compliance at your disposal, you can make sure your organization stays on the right side of laws and regulations, even in a quickly evolving compliance landscape.
In the meantime, please continue following the Paycom blog for news that may affect your business.
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.
