Overview of the ARPA Provisions
On President Joe Biden signed the American Rescue Plan Act of 2021 (ARPA) into law on March 11, 2021. Along with providing financial relief for individuals, state and local governments, schools, businesses, and for other purposes, the law contains the following measures of particular interest to employers and their employees:
- A subsidy for COBRA premiums, funded through employer tax credits
- Extension of employer tax credits for FFCRA employee leaves voluntarily provided through September 30, 2021
- Expansion of employee earnings eligible for the FFCRA tax credit
- Inclusion of testing and immunization as reasons for FFCRA leave
- Extension of $300 increase in weekly unemployment benefits
- Extension of $300 weekly unemployment benefit for workers who usually wouldn’t qualify for unemployment, like the self-employed
- Expansion of subsidy for ACA premiums
- Increase in DCAP contribution limits
The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) allows employees who would lose employer-sponsored health insurance because of job loss (or a reduction in working hours) to continue that insurance for 18 months. However, the employer can require the employee electing COBRA coverage to pay the entire cost of the premium.
The ARPA provides a 100% subsidy of COBRA premiums from April 1, 2021, through September 30, 2021, for employees and their family members who lost health insurance due to the involuntary termination (or reduction in hours) of their employment. These individuals would be allowed to elect subsidized COBRA even if they had earlier declined the COBRA option or had enrolled in COBRA and then dropped it. The subsidy would not apply to employees who voluntarily terminated their employment or qualify for another group health plan.
The federal government funds the subsidy through a refundable payroll tax credit. The ARPA contains new employee notice requirements for plan administrators; the U.S. Department of Labor will issue model notices for this purpose. Employees may elect subsidized COBRA any time from April 1, 2021, through 60 days after receiving notice of the benefit.
The Families First Coronavirus Response Act (FFCRA), passed in March 2020, provided a tax credit for employers to fund two types of paid employee leave required by the law. These leave requirements expired in December 2020. However, the tax credits were extended through March 31, 2021, for employers who chose to continue providing FFCRA leave beyond December 31, 2020.
The ARPA extends the FFCRA employer tax credit for voluntarily provided leave through September 30, 2021, and adds employee time off related to COVID-19 testing and immunization as permissible reasons for taking the voluntary leave. It also increases the amount of wages eligible for the family leave credit from $10,000 to $12,000 per employee. It provides an additional ten days of voluntary emergency paid sick leave for employees, beginning April 1, 2021.
The ARPA extends two pandemic-related federal unemployment programs that were otherwise scheduled to end on March 14, 2021. These include:
- Pandemic Unemployment Assistance (PUA), which provides a weekly $300 benefit to independent contractors, self-employed individuals, and other workers who would typically not be eligible for unemployment benefits; and
- Pandemic Emergency Unemployment Compensation (PEUC) provides an additional $300 weekly payment to individuals who are already receiving regular weekly unemployment or PUA benefits.
Under the ARPA, both of these benefits are now available through September 6, 2021. The ARPA also changes how unemployment benefits received in 2020 are taxed. Specifically, it exempts the first $10,200 from federal income tax for each spouse in households with under $150,000 in adjusted gross income.
The ARPA temporarily increases the dollar amount and expands eligibility for federal subsidies for health insurance coverage purchased through the Affordable Care Act (ACA) Exchanges. Currently, the ACA’s premium tax credits are not available to individuals with income at or above 400% of the federal poverty level. The ARPA temporarily eliminates this income cap on these subsidies for two years.
The law also:
- Limits the total amount a household would be required to pay for health coverage through the Exchanges to 8.5% of their household income;
- Increases the federal subsidy amounts available for lower-income individuals, eliminating premium costs for these individuals in some cases; and
- Includes additional federal funding intended to encourage states that did not previously expand their Medicaid programs to do so now.
These ACA changes are temporary and will expire after two years.
For taxable years beginning after December 31, 2020, and before January 1, 2022, the ARPA increases the annual contribution limit for a dependent care assistance program (DCAP) from $5,000 to $10,500 (and from $2,500 to $5,250 for married individuals filing taxes separately).
Employers with DCAPs can retroactively amend their plans to incorporate this increase, if:
- The amendment is adopted by the last day of the plan year in which it is effective; and
- The plan operates consistently with the terms of the amendment until it is adopted.
Employers should review the ARPA’s provisions to identify any requirements and opportunities that apply to them. Employers should watch for official guidance on the implementation of the law.