The American Rescue Plan Act of 2021 (ARPA), the latest COVID-19 relief bill, offers a 100 percent COBRA subsidy and expands eligibility for paid leave tax credits, among other provisions. The bill was signed by President Biden on March 11, 2021.
COBRA subsidy: Employees who lose employer-sponsored group health insurance coverage due to involuntary termination of employment or reduction in hours are eligible for a 100 percent subsidy of the cost of COBRA coverage (for group medical, dental, and vision insurance premiums) for themselves and their qualified dependents for up to six months.
These beneficiaries are eligible for the subsidy for any portion of their COBRA eligibility period that overlaps with April 1 through September 30, 2021, even if they initially failed to elect COBRA or failed to pay the premiums. These individuals don’t pay anything during the subsidy period. The employer (for self-insured plans) or insurer (for fully insured plans) provides the free coverage and claims a tax credit from the IRS.
The U.S. Department of Labor (DOL) will be issuing model notices of workers’ rights to these COBRA subsidies. If you sponsor a group health plan, ensure that your employees receive the appropriate notices (which may come from your plan administrator or insurer) and that qualifying employees who elect COBRA receive free COBRA coverage during the subsidy period.
Voluntary extension and expansion of FFCRA tax credits: The Consolidated Appropriations Act of 2021 already allowed employers with fewer than 500 employees to receive tax credits for voluntarily providing paid leave under the Families First Coronavirus Response Act (FFCRA) from January 1, 2021, through March 31, 2021. ARPA goes a step further, establishing a new period of voluntary paid leave tax credits for employers with fewer than 500 employees from April 1, 2021, through September 30, 2021, and also expanding covered reasons for leave during those six months.
ARPA expands the six acceptable reasons for emergency paid sick leave (EPSL) under the FFCRA to cover time off when an employee: (1) is seeking or awaiting the results of a COVID-19 diagnostic test or medical diagnosis because they’ve been exposed to COVID–19 or the employer has requested the test or diagnosis; or (2) is obtaining a COVID-19 vaccine or recovering from any injury, disability, illness, or condition related to the vaccine. The EPSL “clock” resets on April 1, 2021, so employees who already took 10 days of EPSL before that date may take an additional 10 days once ARPA takes effect. The dollar amounts capping the amount of tax credits remain unchanged (full pay for the employee’s own need for leave, capped at $511 per day and $5,110 total, per employee, and two-thirds pay to care for a family member, capped at $200 per day and $2,000 total, per employee).
ARPA expands the acceptable reasons for emergency/expanded family medical leave (EFML) under the FFCRA, which previously only covered time off to care for a child whose school or place of care was closed due to COVID-19, to include all of the EPSL reasons (including the new ones). EFML will be available as paid leave for all 12 weeks, not just the final 10 weeks as under the original FFCRA. The total cap on the tax credit for pay during EFML continues to be $200 per day, but because the total length of paid EFML will be 12 weeks instead of 10 weeks, the aggregate cap will be $12,000 instead of $10,000. (Note that this means a total of 14 weeks of paid leave potentially could be available: 2 weeks of EPSL and 12 weeks of paid EFML.) The original EFML was a temporary expansion of the federal Family and Medical Leave Act (FMLA), so EFML counted against FMLA leave. We don’t yet have guidance from the IRS or DOL whether this will continue to be the case, but our best guess at this time is that it will be. For employees who already took 12 weeks of EFML, it’s likely (but unclear) that the employee may have a fresh bank of EFML hours depending on the timing of your 12-month FMLA/EFML leave year, or possibly even based on the April 1, 2021, effective date of the changes. Stay tuned.
You aren’t eligible for the tax credits if you discriminate in providing leave in favor of highly compensated or full-time employees, or on the basis of length of employment.
Tips: In addition to these changes, ARPA includes numerous provisions related to tax relief (such as extending and expanding the Employee Retention Tax Credit for struggling businesses), employee benefits (such as allowing employers to amend their dependent care flexible spending arrangements to allow higher contributions in 2021), and unemployment benefits (such as increasing the benefit amount and number of weeks available). Talk with your tax adviser and employee benefit plan adviser to evaluate whether to take any action to address the ARPA changes as they apply to your business.