The American Rescue Plan Act of 2021 was signed on March 11, 2021, which means there are more updates and changes coming our way. In addition to the stimulus payments and various other business and individual tax changes, there are several updates in the payroll tax area. As with everything we have seen over the past year, there are unanswered questions and areas that various governmental agencies will need to release additional guidance on. Here is what we know at this point:
Changes to paid leaves (established under FFCRA)
- All FFCRA leaves remain voluntary. However, as long as an employer offers the leaves uniformly to ALL employees (tenure, position, salary, etc.) the employer is eligible for tax credits on the paid leaves thru September 30, 2021.
- Emergency Paid Sick Leave (EPSL) – Effective April 1, 2021
The eligible reasons for leaves have been expanded to include:
- The employee is obtaining a COVID-19 vaccination.
- The employee is recovering from any illness related to receiving the vaccine.
- The employee is seeking or waiting for test results or a medical diagnosis for COVID-19, or the employer has requested the employee to obtain the same.
- The EPSL allowed for 10 days (up to 80 hours) of paid leave between April 1, 2020 and March 31, 2021. On April 1, 2021, employers can reset that balance to 10 days (up to 80 hours) if they elect to continue offering the leave.
- Emergency Paid Family Medical Leave (EPFML) – Effective April 1, 2021
- Eligible reasons to take EPFML have been expanded to match all reasons listed under FFCRA for EPSL, including the new reasons above. (Previously, EPFML was only available for leave needed to care for a child whose school was closed or whose caregiver was unavailable due to COVID-19).
- The first two weeks of EPFML may now be paid at 2/3 the regular rate of pay (previously unpaid – or used EPSL) and eligible for the tax credit. This raises the maximum tax credit limit for EFMLA from $10,000 to $12,000 per employee.
- All pay for EPFML, regardless of reason, is paid at 2/3 of the employee’s regular wages, capped at $200 a day
Changes to Employee Retention Credit
- The Employee Retention Credit has been extended thru December 31, 2021, with the same base parameters as the first two quarters of 2021.
- Effective July 1, 2021, certain small start-ups that began operating after February 15, 2020, will be eligible for a maximum credit of $50k per quarter, even if they have not met the gross receipt or suspension clauses.
NEW — COBRA Subsidy
- Employers are required to provide a 100% COBRA subsidy for up to 6 months (April 1, 2021 thru September 30, 2021) for anyone who lost health coverage because of an involuntary termination or reduction in hours.
- The act includes a “second chance” election for those who did not initially elect COBRA or let their COBRA coverage lapse. Employers must send notice to impacted employees, former employees, and covered family members by May 31, 2021. The DOL is to release a model notice that can be used by mid-April.
- The act does NOT extend the COBRA coverage period.
- The subsidy is not taxable to the COBRA beneficiary.
- The employer, insurer or multi-employer plan sponsor will offset the cost by claiming a credit against Medicare payroll taxes. This will likely need to be reported on the 941 and B2E Solutions will eventually need the amounts. However, the IRS still needs to provide additional guidance on this item. We will continue to monitor and provide updates as they become available.
Changes to Dependent Care FSA
- For Calendar year 2021, ONLY, the dependent care FSA limit has been increased to $10,500.
- Employers may amend their plans to permit participants to prospectively change their election, however, they are not required to adopt this change.
What’s next?
At this point, there is nothing that B2E Solutions is requiring of clients. However, you will want to check with your COBRA administrator on required actions you may have related to the COBRA Subsidy. You should also review the Dependent Care FSA options with your FSA administrator. B2E Solutions will provide guidance on next steps once additional information is available from the DOL, IRS and our software vendors.
