Wow. Just wow. The American Rescue Plan Act(HR1319) is here. Signed into law on 3/11/2021 it is so much more than the $1,400 stimulus checks Congress has been promising. After several days we've read the full law top to bottom and here are several of the highlights identified from taking our own pass at ARPA. We've tried to keep it brief and remove the legalese so that it's digestible. Feel free to use any "Sec. XXXX" References to search the document and get more information. Also, since we are "individuals" when we take our "business" hat off at the end of the day, we highly recommend all people from executives to rank and file employees will benefit from the ARPA: Consumer Addition here.
The full ARPA Text can be found here: https://www.congress.gov/bill/117th-congress/house-bill/1319/text
This section is going to be separated into guidance for employers and solopreneurs.
For employers, you are destined to come in contact with unemployment both in hiring employees and any potential layoffs, furloughs, or let goes. As a Registered Employee Benefits Consultant® with the National Association of Health Underwriters we have seen our employer groups pretty passionate about understanding and improving the lives of their rank and file employees. We see ARPA as a way to help with that. When it comes to benefits, our COBRA section below will address a safety net as businesses shift. For employees laid off, Sec. 9011 will provide unemployment income and the $300 per week catchup through 9/6/2021. Now is a time to focus on hiring the right people with confidence that the UI program will allow them and YOU time to vet the right fit for your business. For furloughed employees, they will also be eligible for these benefits.
For solopreneurs, not only will PUA be extended, but health insurance benefits (outlined below) will assume for the entire year that you are eligible for one of 16 $0 plans through the affordable care act(assuming you don't have access to health insurance through your or a spouses employer as well).
State Small Business Credit Initiative
Under Sec. 3301 the plan allocates $10 billion to states to distribute to small businesses. Not only that, but it provides a government insurance program for community lenders to provide funding to businesses with fewer than 500 employees and loans up to $5 million.
Sec. 5002 states they have established $15 billion in "Targeted EIDL advances" to be split between:
$10 billion designated to those who have not yet received what they are eligible for under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
$5 billion earmarked for ultra-small businesses eligible under section 1110(e) of the CARES Act who have suffered an economic loss of 50% and have fewer than 10 employees.
Sec 5006. adds $7.25 billion in PPP monies to what was already allocated in the Consolidated Appropriations Act(CAA) signed December 27th, 2020. This will give businesses who haven't yet applied for the second round of PPP to be able to reach out to their lender and see if they qualify. Under CAA you have to show a 25% dip in gross revenues for any similar quarter. So Q1. 2019 compared to Q1. 2020, Q2. to Q2., Q3. to Q3. and so forth.
For employers required to offer COBRA, the DOL has 30-45 days(depending on the notices) to send out model notices you must give to your employees regarding COBRA. Sec. 9501 will give employers a dollar-for-dollar reduction in payroll taxes due for COBRA payments paid by the company. So to ex-employees, it is perceived as free COBRA, and it is through your payment and reimbursement. That said, "COBRA Free" benefits are only available through September 30th, 2021.
As a plan fiduciary it's important that either you or your broker explain that COBRA benefits beyond September 30th will revert to the full cost and if these benefits are elected that they will lose access to shifting to marketplace coverage starting October 1st. It might actually behoove them to go with a marketplace plan, especially if they will be receiving unemployment, as those plans will also include $0 options that would run through December 31st without the risk of the September fall off. This advice helps them, promotes goodwill, and removes the bookkeeping burden of overpaying COBRA benefits out of cash flow and seeking reimbursement quarterly from the Department of Treasury.
Under Sec. 9673, ARPA specifically outlines that Restaurant Revitalization Grants shall be excluded from income! This will assist small restaurants in two ways. First and foremost, no taxation on those grant monies. Secondly, grant money used for operations will cause income statements to show a lower profit, or in some cases for small restaurants, losses. These losses will help already struggling restaurants and their owners, to have access to additional resources like Medicaid. Owners in our area who are strapped for cash, recognize that now is a time to rebuild, not shell out $1,000 a month in cash flow that could be utilized elsewhere. This is what Medicaid was designed for. Not lifelong members of the system, but to step in during times of need. As a community-based organization, we are seeing many businesses silently hurting. Their P&L shows it, but they are remaining a brave face. These grants and tax-favored status will hopefully help to rebuild.
EE Dependent Care
This is just for 2021 but under Sec. 9631, discussed in length in our consumer edition, we address the Childcare Tax Credit Boost. Who's tired of Zoom calls? Better yet, who's tired of working from home and being asked to print out a ninja turtle coloring page? Clearly, that one hits close to home for us. Well as we manage remote learning and the blending of work and life, ARPA is trying to flesh out the viability of childcare as a solution. We've had a Dependent Care Credit in the past, but it is faulty only covering at most 35% of daycare costs, AND that's if you only make $15,000, AND up to $3,000 of childcare expenses are counted per child, AND it's non-refundable, so W2 employees who pretty much cover their Tax liability with payroll, never really got much from it. Now? We are bumping to "Everyone under $125k for 2021 will get childcare reimbursed at tax time up to $8,000 of costs are multiplied by that 50% number per dependent(16k for 2 or more) and it's refundable." Big difference. Above $125k there is a phase-out that reduces your benefit by 1% for every $2k in income. It takes until $187k before you hit the minimum of 20% deduction. You can play with the calculator we built here:
Why do you care? You're the employer. This may just be the hero benefit you tell your employees about to consider as a way for them to achieve quiet in their household. Or, this could be a benefits planning opportunity. Consider talking to your broker about Dependent Care Accounts that could supplement what the employee is getting from this credit. We ran the numbers and under the current system, a household of 4 making $100,000 a year paying $2,000 a month for daycare costs would qualify for $1,200 toward taxes owed without a refund. Comparatively, for 2021 they'd be eligible for $8,000(the full 50%) and whatever is leftover from paying taxes owed will be a refund to their bank account. That's a pretty big deal.
Extending Paid Sick and Family Leave Credits
On April 1st, 2020 the Families First Coronavirus Response Act(FFCRA) went into effect providing guidance on paid sick leave for employees related to COVID.
Benefits for Employers: Within ARPA, Sec. 3132, employers will continue to have access through Q3, 2021 to utilize federal credits that offset Paid Sick and Family Leave Benefits. The Department of Labor has a great resource on the provisions here: https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave. Additionally, Reuters has information here: https://tax.thomsonreuters.com/blog/congress-passes-arpa-with-many-covid-19-payroll-related-provisions/
Benefits for Solopreneurs: Under Sec. 9642 they also extend these benefits to self-employed individuals under the Emergency Paid Sick Leave Act(EPSLA) allowing them up to 60 days of "paid leave" if they or someone in their immediate family test COVID positive or are required to quarantine. Obviously, "paid leave" for someone who is self-employed is a bit paradoxical. The IRS breaks this down and provides form 7202 for reporting. Obviously, revenues on paper don't necessarily correlate to distributions from company accounts. For solopreneurs, you'll use your prior year's net profit against the number of days you are out as a baseline for calculating what you are eligible for.
How Do You Get The Credit?
In both cases, businesses will deduct the amounts determined from their quarterly payroll taxes. Again, in both cases, if what you are claiming is more than what you are paying quarterly, you will be able to file and get reimbursed by the IRS. The fact that these benefits are entwined with your quarterly reporting, gave us another piece of help. Under Sec 3131(i) the IRS must waive any quarterly tax penalties under section 6656 for failure to file if it was due to anticipation of these credits. So, if you are owed a refund, you should talk to your bookkeeper but breathe a sigh of relief that as Treasury processes your refund you won't accrue interest on assumed quarterlies owed.
Imputed Health Premiums Credit: More Exciting Than It Sounds
Sec 3131(d) has this little nugget... In addition, employers will be able to impute the employer portion of the health insurance premium as allocated over the FMLA. Sorry if that was a bit gibberish. Here's a real-world example: say you typically cover $700 per month as your portion of their health insurance benefits. In an ideal world where there is exactly four weeks(20 business days) and your employee is out for two weeks, you'd be able to take a prorated allowable amount of $35 per day above the paid sick leave credit, or $350 for this case.
Employee Retention Credits
Sec. 3134 states that Employee Retention Credits will be extended. These credits allow employers to recoup up to $10,000 per calendar quarter per employee 70% of FICA taxes owed. As you can see, along with the paid sick and family leave act, a lot of these benefits are against quarterly taxes. In this case, though, the benefits are also refundable, so it's likely between these different resources available your quarterly payments will be less than the credits you are owed and keep posted for refunds from the IRS.
Obviously, this is our neck of the woods when it comes to employee benefits. As Registered Employee Benefits Consultants(REBC®) with NAHU as well as certifications in Employer-Sponsored Plans in the ACA era, Account-Based Health Plans, and Advanced Self Funding concepts, this is one place where we can shed some light on employer costs.
For benefit managers, these past few years managing benefits increases have been rough. Several initiatives around price transparency, direct primary care, and drug cost containment are being addressed outside of ARPA, but it doesn't stop the fact that healthcare premiums today are astronomically higher than before the Affordable Care Act. We have fielded calls and discussions from all stakeholders about whether group benefits or individual health through the ACA is really the best fit. From what we can see, ARPA, at least in our region, just tilted the scales pretty heavily toward the individual exchange at least through 2022. Why is that? This past year and the year before we started to see evidence that markets were stabilizing. Not only were rate hikes not as drastic, in some cases we saw reductions, and in other cases, we saw more competition in the markets as actuaries had consistent data and insurers saw opportunities.
So a stabilizing individual market is great for employers trying to plan and contain costs. Add to the fact that the full market is seeing an overhaul, and it makes sense. Take ABC Company, a small employer with 10 employees exhausting $120,000 per year to offer 100% employer-paid benefits to their employees. The reason? The same most businesses offer benefits: to retain and attract the best team members for their organization. The issue, and what we often see, is that the Executives and Rank and File employees are managing two different lifestyles and two different needs. On top of that, the benefits/HR person has to annually shop around for a plan that is middle of the road and has a few more benefits than the healthy 23-year-old needs but not quite as many features as the 62-year-old in billing with cancer would hope for. Their alternative before ARPA would have been rank and file employees finding a marketplace plan around $100 a month that they'd have to pay for and the executives, one of which is 64 with a 64-year-old wife and makes $400,000 per year, would have to pay $2,000 out of their own pocket for benefits.
In comes ARPA Sec. 9661. For their rank and file employees, many with children qualify for $0 premium CHIP, and for those that don't, the amount of tax credits all but offset the costs of coverage. In Lancaster, incomes below 150% of the federal poverty limit are eligible to enroll in $0 plans. Their choices are from 16 of the 31 plans available at no cost. For your executives, where the sky was the limit, Sec. 9661 also caps all premiums to 8.5% of your employee's wages greatly curbing costs. And, for the company, freeing up $120,000 in cash flow allows them to cover the full cost of other benefits like dental, vision, disability, retirement, EAP wellness, or the like.
Sorry if we seem excited, but this bill is a renaissance in healthcare. The "affordable" part of the Affordable Care Act has been missing for far too long and we see the light at the end of the tunnel. We'd highly recommend you talk to your broker, or give us a call, to go over the options afforded to your team.