President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law on March 11, 2021. ARPA provides $1.9 trillion in federal stimulus, which includes, in addition to subsidies for employer-provided benefits plans, a handful of items directly affecting employers and their employees, most notably extension of tax credits under the Families First Coronavirus Response Act (FFCRA) and Payroll Protection Plan (PPP) loan eligibility.
What Is Included in ARPA Affecting Employers and Employees?
Extension of Tax Credits for Employers That Voluntarily Continue to Allow FFCRA Leave
Employers with 500 or fewer employees should decide now whether they wish to claim tax credits for employee leave taken in the next two quarters of 2021 for reasons related to COVID-19, and update their policies accordingly.
As we previously advised, the FFCRA's requirement that employers with fewer than 500 employees to extend paid leave benefits to employees expired on December 31, 2020. However, the tax credits continued to be available for covered employers who provided paid leave to employees for FFCRA-qualifying reasons through the first quarter of 2021.
ARPA provides employers with the opportunity to obtain tax credit for offering an additional 10 days' worth of paid sick leave to eligible employees during the second and third quarters of 2021, i.e., April 1, 2021 through September 31, 2021. In addition, ARPA expands the coverage of the type of sick leave that qualifies for tax credit.
Under one prong of the FFCRA's Emergency Paid Sick Leave Act (EPSLA), an employee was entitled to paid leave only if he or she was "experiencing symptoms consistent with COVID-19 and seeking a diagnosis." ARPA modifies this eligibility category to eliminate the reference to COVID-19 symptoms (presumably in light of the fact that carriers of the virus may be asymptomatic), but imposes the condition that "such employee has been exposed to COVID-19 or the employee's employer has requested such test or diagnosis."
In addition to the other four qualifying reasons for taking paid sick leave under the EPSLA, ARPA makes the tax credit available "if the employee is [taking paid leave in connection with] obtaining immunization related to COVID-19 or recovering from any injury, disability, illness or condition related to such immunization."
The tax credit for leave in connection with an individual's own health condition (including vaccine-related leave) remains equal to the employee's regular rate of pay, up to a maximum of $511 per day, and the tax credit for other forms of sick leave remains capped at two-thirds the regular rate of pay, up to $200 per day.
ARPA also provides tax credit for up to an additional 12 weeks of partially paid leave under the FFCRA's Emergency Family and Medical Leave Expansion Act (EFMLEA), with a significant expansion of qualifying reasons. Under the FFCRA, EFMLEA leave was available only in connection with an employee's inability to work or telework due to a COVID-19-related closure of a son or daughter's school or place of care. ARPA expands the list of qualifying reasons so that they are coextensive with the EPSLA.
What's more, ARPA eliminates the FFCRA's initial two-week period of unpaid EFMLEA leave (but keeps the maximum tax credit equal to two-thirds the employee's regular rate of pay—regardless of qualifying condition—up to a maximum of $200 per day). Accordingly, the maximum amount of tax credit available to an employer under this provision of ARPA has been increased from $10,000 (10 weeks of leave, with a $200-per-day cap) to $12,000.
ARPA prevents an employer from cherry-picking which of the qualifying reasons under the FFCRA it wishes to recognize, or to which employees it wishes to extend them, and takes an all-or-nothing approach to the leave entitlement. Specifically, "[i]f an employer fails to comply with any requirement" of the EPSLA or EFMLEA, "amounts paid by such employer with respect to such paid sick [or family] time shall not be taken into account as qualified sick [or family] leave wages." Moreover, no credit is available if an employer "discriminates in favor of highly compensated employees … full time employees, or employees on the basis of employment tenure with such employer."
While extension of ARPA tax creditable leaves is voluntary, several states impose paid leave requirements on employers in connection with circumstances related to COVID-19. New York, for example, requires certain employers to provide up to 14 days of paid leave to employees under an order of quarantine, and up to four hours of paid leave to employees so that they can get vaccinated. ARPA provides these employers with an opportunity to offset some of those costs, provided they comply with the other expanded provisions of the FFCRA.
Extension of PPP Loans and Other Benefits for Small Businesses
ARPA adds $7.25 billion to the popular Paycheck Protection Program (PPP) and expands eligibility to internet-only news publishers (500 employees or fewer), some tax-exempt groups (labor organizations, social and recreational clubs, fraternal benefit societies and religious educational groups) with no more than 300 employees and which meet specific limitations on lobbying activities, and many larger nonprofits (e.g., 501(c)(3) organizations) with no more than 500 employees.
The current deadline to apply for PPP loans is March 31, 2021. However, the House of Representatives has passed a bill to extend the deadline to May 31, 2021. The bill is expected to pass in the Senate and be signed into law soon.
ARPA establishes other notable benefits aimed at assisting small businesses as well. These include, for example, the Restaurant Revitalization Fund—a $28.6 billion fund that provides grants to eligible entities for pandemic-related revenue loss. (See our Restaurant Revitalization Fund FAQs.) ARPA also sets aside substantial sums for other small business loans, to support vaccination efforts, school re-openings, health insurance and other similar endeavors responsive to the pandemic and its far-reaching consequences.
Extension of Unemployment Benefits for Certain Individuals
ARPA extends unemployment benefits in three key ways:
- 1. ARPA adds $300 per week for individuals collecting any form of unemployment compensation benefits (including, inter alia, traditional unemployment compensation and PEUC and PUA benefits described below) through September 6, 2021. This $300 addition extends a benefit previously scheduled to expire on March 14, 2021, under the Continued Assistance for Unemployed Workers Act of 2020.
- 2. Pandemic Emergency Unemployment Compensation (PEUC) benefits originally extended under the CARES Act—which may become available once an individual exhausts traditional unemployment compensation—are extended until September 6, 2021.
- 3. Pandemic Unemployment Assistance (PUA) benefits, which were also part of the CARES Act and which may become available once an individual exhausts extended unemployment compensation benefits (or, if the state in which the individual lives has not triggered "on" to extended benefits, exhausts traditional unemployment compensation and PEUC benefits), are extended to September 6, 2021.
- PUA also applies to individuals who are self-employed or who otherwise are seeking employment but are not eligible for traditional unemployment compensation benefits, and benefits for those individuals are likewise extended to September 6, 2021.
In addition to extending unemployment compensation benefits (in various forms), ARPA permits an individual or each spouse to exclude $10,200 in unemployment benefits from federal income tax, as long as the household income is under $150,000. This means that if both spouses receive unemployment compensation and their total household income is under $150,000, up to $20,400 may be excluded from federal income tax.
What Is Not Included in ARPA?
The ARPA, as finally adopted, did not include certain controversial proposals that would have had a significant impact on employers, including:
- No Increase to Federal Minimum Wage: The bill did not ultimately adopt President Biden's push to bump up the federal minimum wage from $7.25 per hour (the hourly rate in place since 2009) to $15 per hour. Of course, many states and local jurisdictions have minimum wage requirements that already are far in excess of the federal minimum wage.
- No Elimination of Tip Credit: A provision to phase out the existing federal tip credit allowance was eliminated from the final Act. Currently, many states do not allow a tip credit toward state minimum wage obligation for tipped employees, but for those states that permit a tip credit, ARPA does not alter the status quo. Employers in the hospitality industry may breathe a sigh of relief that this was ultimately removed from the final bill.
- No Paid Leave Entitlement: ARPA does not expand obligations for employers in the private sector to provide employees with paid leave. Instead, as described above, ARPA incentivizes—but does not require—employers to provide additional paid leave under the FFCRA through September 2021.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.