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The Arrival of ARPA: The American Rescue Plan Act of 2021 – Part I

Blogger’s note: On March 11, President Biden signed the American Rescue Plan Act of 2021 into law. 

Written Wednesday, March 10, at 2:30 PM ET

Déjà vu, anyone? For the third time since the outbreak of the pandemic, America’s lawmakers have agreed upon a mega-relief package designed to bolster a beleaguered economy by providing direct payments and other economic aid.

The American Rescue Plan Act of 2021, President Biden’s first major legislative achievement, was approved by the House on Wednesday afternoon and is expected to be signed into law by President Biden on Friday. It’s a sweeping $1.9 trillion relief package with provisions that range from increasing the child tax credit to railroad and airline support to funding for the preservation of Native American languages.

What’s in it for employers? Let’s dig in.

[Keep in mind that this is brand new legislation, so the following is a first look. Further insight and understanding may emerge as Viventium’s Compliance Resources comb through the nearly 630 page law.]

Highlights:

Part I:

  • Expansion and Extension of the Employee Retention Credit
  • Extension but Restriction of the FFCRA Paid Leave Credit

Part II:

  • Additional PPP Funding and Eligibility
  • Increased Educational Assistance Tax-Free Benefit
  • New Restaurant Forgivable SBA Loans

Extension and Expansion of the Employee Retention Credit

The ERC, originally created by the CARES Act in March 2020, is designed to help employers keep their employees on payroll. In 2020, the refundable payroll tax credit was 50% of wages paid up to $10,000 per employee, so that the maximum credit per employee for the year was $5,000. The Disaster Tax Relief Act of 2020 extended the credit until June 30, 2021, increased the credit to 70% of wages, and upped the wage limit to $10,000 per quarter (instead of per year), so there was a potential additional $14,000 available per employee in 2021 ($10,000 wages X 70% X 2 quarters).

And now, the ARPA further extends the ERC until December 31, 2021, meaning up to $14,000 more per employee for a total potential ERC credit per employee of $33,000 ($5,000 in 2020 plus $7,000 for each quarter of 2021). In addition, startups that were established after February 15, 2020, can now qualify for the credit (not to exceed a total of $50,000 per quarter).

Extension but Restriction of the FFCRA Paid Leave Credit

Similarly, the Families First Coronavirus Response Act created a refundable payroll tax credit for mandatory paid sick and family leave due to COVID-19 during 2020. The leave (and the credit) was limited to $5,110 for self-care leave, $2,000 for other-care leave, and $10,000 for family leave. The Tax Relief Act of 2020 extended the credit but not the leave requirement until March 31, 2021. That means that you don’t have to pay leave in the first quarter of 2021, but if you choose to, you get a payroll tax credit for it. Under the 2020 law, the total credits for 2020 and 2021 were not allowed to exceed the $5,110/2,000/10,000 limits.

Enter ARPA: FFCRA credits are now extended through September 30, 2021. Paying the leave remains voluntary, but of course, you only get the credit if you pay the leave. What about the limits? Will they continue to carry-over from 2020, or will they be reset for 2021? The answer seems to be “reset”; the limits will be separately applied to each year. In addition, credits taken during the first quarter of 2021 are excluded when calculating 2021 limits. We’ll have to wait for IRS guidance for further clarification on this one.

What’s the restriction? If your paid leave plan favors:

  1. Highly compensated employees;
  2. Full-time employees; OR
  3. Employees based on tenure;

then you are barred from receiving credits. That’s something new, and employers are advised to review their COVID PTO plans with their legal counsel/benefit consultants to make any needed plan modifications and confirm eligibility.

For more information, check out Part II.

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