Payroll Implications of the American Rescue Plan Act 2021

• Reading Time: 7 Minutes
• Published: September 21, 2021
• Last Updated: January 14, 2025

On March 11, 2021, a new law into H.R. 1319 was signed by President Biden, known as the American Rescue Plan Act (ARPA). The act is issued to provide support for $1.9 trillion to individuals, companies, and corporations, as well as state and local governments that are affected by the Covid-19 pandemic.

ARPA even has established the Restaurant Revitalization Fund (RRF) to provide funding to help restaurants. This helped restaurants and other eligible businesses avoid shutting their business down.

Restaurants can get funds equal to their pandemic-related revenue loss of up to $10 million per business and no more than $5 million per physical location. Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.

Apart from this, there are some payroll implications you need to know. If you have any doubt about anything, you can get in touch with your payroll service provider and clear them all.

1. Paid Sick and Family Leave Credits

ARPA has extended the  Families First Coronavirus Response Act (FFCRA) paid sick time and family leaves credits until September 30, 2021. The ARPA allows workers refundable tax credit lasting up to 10 days of paid sick leave from April 1, 2021.

2. Employee retention credit and short-term compensation program:

Employee retention credits (ERCs) are a feature of the ARPA that enables employers to retain workers on the payroll. ARPA has expanded the ERC till the end of this year, from June 30, 2021. (December 31, 2021). During such a time, it enables the tax credit to remain at a 70 percent rate. The qualified wage of $10,000 remains unchanged.

The ARPA also widens the ERC program’s reach. ERCs are generally available for all workers at qualified employers with 500 or fewer workers for the furloughed workforce. The ARPA, on the other hand, requires employers with more than 500 workers who are “severely financially distressed” to demand ERCs for all employees in the third and fourth quarters of 2021. For this reason, a “severely financially distressed” employer has gross receipts for a calendar quarter in 2021 that are less than 10% of gross receipts for the same calendar quarter in 2019.

3. COBRA Subsidy Extension

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees and their family members who lost their group health credits for qualifying reasons to continue the benefits until after 18 months of a qualifying event. In the time period covered by COBRA, the employee has to bear the costs of the insurance premium. However, ARPA provides a 100% subsidy on health insurance premiums under COBRA (including administrative fees) for up to 6 months for employees who do not have insurance coverage due to involuntary termination or reduction in hours. The duration of the subsidy is from April 11, 2020, to September 30, 2021. However, the period ends sooner if the employee qualifies for another group health plan or his COBRA period reaches the deadline. There is no extension on employees once the employee covers the maximum period of COBRA subsidy. But, if the employee is under the subsidy period, he gets no cost COBRA coverage.

4. Earned Income Credit

Earned Income Credit also faced some major changes for tax years between December 31, 2020, and January 1, 2022.

There are have some major changes for the taxpayers without qualifying children

• The age limit is reduced from 25 to 19 without qualifying children to become eligible for the EITC.
• New Code Sections are added which define the terms “specified student,” “qualified former foster youth,” and “qualified homeless youth.”
• The maximum age limit that was 65 for eligibility of EITC was eliminated. Individuals above 65 age can also claim for EITC now.
• The Credit and phase-out percentage has been increased from 7.65% to 15.3%.
• The phase-out amount has been increased from $5280 to $11610.
• The earned income amount has been increased from $4220 to $9820.

It is okay to feel a little intimidated with so many changes and nearing the deadline for a few of the subsidies. Consult your payroll outsourcing service provider to get a better idea of how ARPA actually impacts you as an employer.

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