The American Rescue Plan Act of 2021 (ARPA) was signed by President Biden on March 11, 2021. It includes a variety of provisions designed to provide relief for eligible individuals and businesses struggling due to COVID-19.
The following information highlights the HCM-related provisions of ARPA.
Payroll and tax provisions
Optional Extension of Tax Credits for Paid Sick and Family Medical Leave
Employers with 500 employees or less can voluntarily choose to provide eligible employees with Emergency Paid Sick Leave or Emergency Family Medical Leave (collectively referred to as “ARPA leave”) from April 1, 2021 through September 30, 2021 and receive tax credit.
Unlike the original mandatory leave created in the Families First Coronavirus Response Act (FFCRA) that was extended through March 31, 2021 under the Consolidated Appropriations Act, 2021 (CAA), the new leave authorized under ARPA is not exempt from employer Social Security tax. The ARPA leave will be fully taxed when it is paid on the employee’s check, but isolved® will calculate a tax credit equal to the sum of:
- The amount of the ARPA leave wages
- Employer qualified health plan expenses attributable to employees while they are on ARPA leave
- The amount of employer Social Security Tax calculated on the ARPA leave wages
- The amount of employer Medicare Tax calculated on the ARPA leave wages
Employees can take a combined 80 hours for Emergency Paid Sick Leave (EPSL) authorized under ARPA from 4/1/2021 – 9/30/2021. This resets the limit for EPSL previously authorized under the FFCRA and extended under the CAA.
Emergency Paid Sick Leave under ARPA continues to be paid at 100% of the employee’s regular rate of pay, up to $511 per day, for employee qualifying reasons, and at 2/3 of the employee’s regular rate of pay, up to $200 per day, for family qualifying reasons.
Employees can take a combined 480 hours (12 weeks) for Emergency Family Medical Leave (EFMLA) authorized under ARPA taken from 4/1/2021 – 9/30/2021. Unlike the previous EFMLA under the FFCRA and CAA, the first 2 weeks of Emergency Family Medical Leave do not run concurrently with Emergency Paid Sick Leave, so employees can receive 2 weeks of EPSL and then 12 additional weeks of EFMLA between 4/1/2021 and 9/30/2021 under ARPA.
The amount of wages eligible for EFMLA credit increases to $12,000 per employee.
EFMLA under ARPA continues to be paid at 2/3 of the employee’s regular rate of pay, up to $200 per day.
EFMLA can now be taken for all the same employee and family-related reasons as Emergency Paid Sick Leave, including vaccine-related leave. Previously, under the FFCRA and CAA, EFMLA could only be taken if employees needed leave to care for children whose school or daycare was closed due to COVID-19.
New leave earnings and qualified health plan expense memos are available in isolved to process pay for ARPA leave.
Contact your Insperity® payroll specialist to enable the following codes.
| Use | Code Type | Code | Title | Pay Rate | Wage Limit | Max Duration |
|---|---|---|---|---|---|---|
| Emergency Paid Sick Leave (EPSL) under ARPA for employee qualifying reasons | Earning | ARPASickEE | EPSL-ARPA EE | 100% | $511 / day | 10 days (80 hours) |
| Emergency Paid Sick Leave (EPSL) under ARPA for family qualifying reasons | Earning | ARPASick23 | EPSL-ARPA Fam | 2/3 | $200 / day | |
| Emergency Paid Family Medical Leave (EFMLA) under ARPA for any qualifying reason | Earning | ARPAFMLA23 | EPFL-ARPA EFMLA | 2/3 | $200 / day | 12 weeks (480 hours) |
| Qualified health plan expenses allocable to Emergency Paid Sick Leave (EPSL) | Memo | AQHPESick | ARPA QHPE EPSL | |||
| Qualified health plan expenses allocable to Emergency Family Medical Leave (EFMLA) | Memo | AQHPEFMLA | ARPA QHPE EFMLA | |||
The IRS has provided preliminary guidance on how ARPA leave should be represented on the W-2. They have indicated that leave should be differentiated by type and indicate the applicable wage limits. isolved has been updated to include ARPA leave in Box 14, Other. It will be indicated with the following descriptions:
- Emergency Paid Sick Leave (EPSL) from 4/1/2021 – 9/30/2021 for employee
qualifying reasons: ARPASick $511/d - Emergency Paid Sick Leave (EPSL) from 4/1/2021 – 9/30/2021 for family
qualifying reasons: ARPASick $200/d - Emergency Family Medical Leave (EFMLA) from 4/1/2021 – 9/30/2021 for any
qualifying reason: ARPA FMLA $12k
If you prefer to see these wages displayed with other descriptions on the W-2, contact your Payroll Specialist to override these defaults.
For more information, view the ARPA Leave article in the Insperity® Help portal.
Extension of the Employee Retention Credit
ARPA extends the CARES Act Employee Retention Credit (ERC) through 12/31/2021. It also includes a reduction in the required year-over-year gross receipts decline from 50% to 20% and provides an increase in the tax credit rate from 50% to 70% of qualified wages.
The ERC under the CARES Act and CAA was applied against employer Social Security tax. The ERC under ARPA is applied against the employer’s share of Medicare tax on qualified wages and health plan expenses. If the amount of the ERC exceeds the employer Medicare tax liability in the quarter, the remainder is a refundable tax credit.
The ERC cannot be taken for wages that are used to qualify for PPP loan forgiveness, shuttered venue grants, or restaurant revitalization grants.
Two new reports have been added to isolved to assist in calculating the Employee Retention Credit under ARPA from 4/1/2021 – 12/31/2021. These reports are similar to the 2020 ERC reports but will calculate the credit at 70% of qualified wages up to $10,000 per quarter starting on 1/1/2021. The following new reports are available in the *COVID-19 Reports category:
CARES Act Retention Credit Report < 500 ees (2021) for employers with up to 500 employees
CARES Act Retention Credit Report > 500 ees (2021) for employers with more than 500 employees.
- You can modify eligible earnings for the report. By default, these reports include all Medicare-taxable wages.
- For all employers, Emergency Paid Sick Leave (EPSL) and Emergency Family Medical Leave (EFMLA) earnings under the FFCRA and ARPA should be excluded
- For all employers with Paycheck Protection Program (PPP) loans, wages that will be used to qualify for PPP loan forgiveness should be excluded from these reports. Your Payroll Specialist can enter a date range to exclude these wages.
- For employers with more than 500 employees, only include wages that employees earned when they were not working
- You can exclude specific employees from these new reports using miscellaneous fields. Your Payroll Specialist can create the miscellaneous fields so you can mark excluded employees
Employee Retention Credits do not calculate automatically in isolved. Once you’ve used the available reports to determine credit amounts and confirmed that with your legal and financial representatives, you will need to complete the ERC request form and send it to your Payroll Specialist. If you request Employee Retention Credits before you’ve processed your payrolls in the quarter, they will be applied to reduce your 941 tax liabilities on those payrolls. Any remaining Employee Retention Credit at the end of the quarter will be listed as an overpayment on your Form 941, Employer’s Quarterly Federal Tax Return and will be refunded by the IRS.
For more information, view the Employee Retention Credit article in the Insperity Help portal.
Questions? Contact your Insperity® Payroll Specialist for reporting assistance.
Note: The IRS has indicated they will provide further guidance for tax credits related to ARPA and do not recommend amending previously filed Form 941, Employer’s Quarterly Federal Tax Return at this time. Insperity will continue to monitor IRS, SBA, DOL, and Treasury guidance.
Paycheck Protection Program
An additional $7.25 billion funding was provided for the Paycheck Protection Program (PPP).
After the passage of ARPA, President Biden signed the PPP Extension Act of 2021 (HR 1799) on March 30, 2021 to give businesses another 60 days to apply for a PPP loan, through May 31, 2021. HR 1799 authorizes the SBA to process timely applications through June 30, 2021. The SBA informed trade associations on May 4, 2021 that PPP funding has been exhausted and they have stopped accepting applications for loans from most lenders. Some funds have been set aside for previously submitted loan applications that are on hold and have yet to be resolved, and funding is still available for loans made by designated community financial institutions. Confer with your lender for details on your loan application status.
The existing CARES Paycheck Protection Program Report has been updated to include ARPA leave earnings and memos. The COVID-19 columns have also been renamed to provide more clarity for first and second draw PPP loans. This report is used to calculate loan amounts when applying for a first or second draw PPP loan.
The new CARES PPP Loan Forgiveness Report 2021 is available in isolved to help you calculate payroll costs and FTEs for your PPP loan forgiveness application. This report can be used for loans taken in 2020 or 2021. You will need to provide your loan disbursement date to your Payroll Specialist before the report can be used. A new article will be available in isolved University shortly with detailed instructions for using this report.
For more information on the PPP changes under ARPA, refer to the Small Business Administration’s press release.
Benefits provisions
100% COBRA Continuation Coverage Premium Subsidy for Individuals and their Families
ARPA provides a temporary COBRA premium subsidy for six months beginning on April 1, 2021 and ending September 30, 2021 for individuals who lost group health plan coverage due to an involuntary termination or reduction in hours. ARPA also provides a special enrollment period so individuals who would otherwise qualify for the subsidy but are not currently enrolled can enroll now and take advantage of the subsidy.
What is the subsidy amount and how does it work?
The subsidy covers 100% of the cost of COBRA owed by the individual during the subsidy period. The employer sponsoring the group health plan will pay the COBRA premium on behalf of the eligible individual, then take a payroll tax credit in the amount of the subsidy. Note that the subsidy does not extend the otherwise applicable COBRA coverage period.
Who is eligible for the COBRA premium subsidy?
The subsidy is available only to “assistance eligible individuals” or AEIs. AEIs are COBRA qualified beneficiaries who:
- lost group health plan coverage due to an involuntary termination of employment or reduction of hours,
- are still in their original COBRA coverage period, and
- did not subsequently become eligible for Medicare or other group health plan coverage.
Individuals who satisfy the above criteria and who are not currently enrolled in COBRA will receive a new 60-day election period to enroll in coverage and take advantage of the subsidy. This second election period will apply to individuals who did not elect COBRA when first offered, as well as those who elected COBRA and voluntarily dropped coverage, or lost coverage due to nonpayment.
For example, an employee whose hours were reduced to part-time status on August 18, 2020 qualifies for COBRA coverage for 18 months, through February 18, 2022. The employee elected COBRA coverage starting in August 2020 but could no longer afford the premium payments and dropped COBRA coverage on October 31, 2020. Since the employee is still eligible to receive COBRA coverage during the period April 1 – September 30, 2021, they would qualify for the subsidy as long as they did not subsequently become eligible for Medicare or other group health plan coverage.
It is important to note that individuals who fail to provide notice when they become eligible for other coverage or Medicare may be subject to a tax penalty.
How do employers claim the payroll tax credit for the subsidy amounts?
Employers can claim the payroll tax credit on their Form 941, Employer’s Quarterly Federal Tax Return. All federal taxes reported on Form 941 are subject to offset by the credit, including:
- Federal Income Tax
- Social Security Tax withheld from the employee
- Social Security Tax paid by the employer
- Medicare Tax withheld from the employee
- Medicare Tax paid by the employer
If the credit exceeds the amount of taxes due, the credit will be refundable.
- Beginning with the isolved version 7.8 release on Friday, May 14th, 2021, you can apply existing COBRA premium subsidy credits to reduce your 941 tax liabilities in your current payrolls. If you have earned COBRA subsidy tax credits, you will need to contact your Payroll Specialist so those credits can be applied in isolved.
- An updated form will be available in the COVID-19 Resources section of the Insperity Help portal to assist with requesting these credits so they can be applied to your payrolls in isolved.
How and when will AEIs receive notice of the subsidy?
Model ARPA notices were published on April 12, 2021 and must be provided to eligible individuals no later than May 31, 2021.
- For clients who use isolved Benefit Services for COBRA administration, isolved Benefit Services will notify assistance eligible individuals on the employer’s behalf.
How will isolved Benefit Services assist with these COBRA subsidy requirements under ARPA?
Refer to the isolved Benefit Services ARPA FAQ for COBRA participants for more information.
Coordination of COBRA Premium Subsidy and Extension of COBRA deadlines
Individuals who are eligible for the extended COBRA deadlines, clarified in EBSA Disaster Relief Notice 2021-01, will also be eligible for the subsidy if they meet the AEI eligibility requirements. As a reminder, under the COBRA deadline extension relief, COBRA deadlines that otherwise would occur during the “outbreak period” (the period beginning March 1, 2020 and ending 60 days after the announced end of the presidentially declared national emergency) must be extended until the earlier of one year from the date the deadline otherwise would have applied or the end of the outbreak period.
Temporary increase to Dependent Care limits for 2021
ARPA also provided an option for employers to increase the maximum amount that may be contributed to an employee’s Dependent Care FSA from $5,000 ($2,500 married filing separately) to $10,500 ($5,250 married filing separately) for plan year 2021. Employers deciding to adopt this change will need to adopt a retroactive amendment to their Dependent Care FSA plan by the last day of the 2021 plan year (and administer the plan consistently with the terms of the amendment beginning on its effective date). This relief will be in addition to the optional unlimited carryover and/or extended grace period from the relief enacted on December 27, 2020 under the Consolidated Appropriations Act, 2021 (CAA).
- Your Insperity® benefit specialist can update the annual limit on your Dependent Care FSA plan if you decide to allow for the increased contribution limit. Otherwise, the standard $5,000 limit will continue to apply to your 2021 Dependent Care FSA plan.