On March 11, 2021, President Joe Biden signed the American Rescue Plan Act of 2021 (HR 1319)(ARP), to address the ongoing economic impacts of COVID-19. Most of the law does not directly affect the HR function, but portions that do are discussed in this alert. The ARP is essentially an extension of the current tax credit scheme for Emergency Paid Sick Leave (EPSL) and Emergency Family and Medical Leave (EFMLA) under the Families First Coronavirus Response Act (FFCRA). The FFCRA required many employers to provide EPSL and EFMLA in 2020, but became optional when it was extended to cover January 1 through March 31, 2021.
The ARP is effective April 1, 2021, and lasts through September 30, 2021. In other words, it covers wages paid for leave from April 1 through September 30, 2021. However, it remains an optional leave that allows for tax credits, but only to employers with fewer than 500 employees and up to certain caps. To receive the tax credit, employers are required to follow the provisions of the FFCRA as though they are mandatory. For example, employers cannot deny EPSL or EFMLA leave to an employee if they’re otherwise eligible and cannot terminate an employee for taking EPSL or EFMLA leave.
Key changes to EPSL, effective from April 1 through September 30, 2021, are as follows:
Key changes to EFMLA effective from April 1 through September 30, 2021 are as follows:
Employees may now take EPSL or EFMLA under the same conditions, which are:
Note: EPSL offers a higher tax credit except when used for care for others.
The tax credits remain unchanged, except for the increased aggregate cap for EFMLA. For instance,
Employers can also claim a credit for their share of Medicare tax on the employee’s wages and the cost of maintaining the employee’s health insurance (qualified health plan expenses) during their absence.
The White House has a website dedicated to the ARP and according to the IRS, “it is reviewing implementation plans for the ARP. Additional information about a new round of Economic Impact Payments, the expanded Child Tax Credit, including advance payments of the Child Tax Credit, and other tax provisions will be made available as soon as possible on IRS.gov. The IRS strongly urges taxpayers to not file amended returns related to the new legislative provisions or take other unnecessary steps at this time.”
“The IRS will provide taxpayers with additional guidance on those provisions that could affect their 2020 tax return, including the retroactive provision that makes the first $10,200 of 2020 unemployment benefits nontaxable. For those who haven't filed yet, the IRS will provide a worksheet for paper filers and work with software industry to update current tax software so that taxpayers can determine how to report their unemployment income on their 2020 tax return. For those who received unemployment benefits last year and have already filed their 2020 tax return, the IRS emphasizes they should not file an amended return at this time, until the IRS issues additional guidance.”