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What Brokers Need to Know for Their Clients – American Rescue Plan Act of 2021

Broker researching American Rescue Plan Act

On March 11, President Biden signed the American Rescue Plan Act of 2021, which provides $1.9 trillion in relief funds for many areas of economic assistance, including additional support for vaccine distribution, school reopening, small business grants, tax credits, pension funds, unemployment support, health benefits, and homeowner assistance.

Brokers should be aware of a few key aspects of American Rescue Plan Act specific to employees:

  • Families First Coronavirus Response Act required employers with less than 500 employees to provide COVID-19-related paid family leave and paid sick leave, and established corresponding tax credits. The employer mandate expired on December 31, 2020, and has not been renewed, however before the end of the year, Congress extended the tax credit for employers who voluntarily continued to provide such paid leave through March 31, 2021. The American Rescue Plan Act continues the extension of the tax credits for qualifying family leave and sick leave wages that an employer voluntarily pays between April 1, 2021, and September 30, 2021. 

    • Maximum numbers of days of paid qualified sick leave wages and qualified family leave wages – reset maximum number of days after April 1, 2021, to a new reset 10 days maximum number.

    • Leave taken due to a COVID-19 vaccination qualifies as paid sick leave. 

    • Maximum amount of qualified family leave wages per day that can be counted for the credit remains $200, the total number of days of eligible family leave moves from 50 days to 60 days, which in turn increases the total amount of wages eligible for tax credit from $10,000 to $12,000 (plus health plan expenses properly allocable to qualifying leave). 

    • The 6.2% employer share of Social Security tax (up to annual wage caps), would now allow a credit against the 1.45% employer share of Medicare tax (without any annual wage cap). 

  • Terminated employees, unemployment benefits are extended until September 6, 2021, and provides an additional $300 payment per week.

  • Involuntarily terminated employees, a 100% COBRA premium subsidy applies to qualified beneficiaries resulting from an involuntary termination of employment or a reduction of hours. The COBRA premium subsidy is effective the first of the month following the date of the enactment of the legislation. April 1, 2021 and ends on September 30, 2021.

Brokers should be aware of a few key aspects of American Rescue Plan Act specific to small business assistance:

  • Provides an additional $7.25 billion to the Paycheck Protection Program (PPP)
      
    • Provides additional not-for-profits eligibility for the PPP by creating a new category called “additional covered nonprofit entity,” including those nonprofits listed in Section 501(c) of the Internal Revenue Code other than Sections 501(c)(3), 501(c)(4), 501(c)(6), and 501(c)(19) (entities under 501(c)(3) and (c)(6) are already eligible for PPP funding). These new categories of organizations are eligible to receive PPP loans ensuring the following: 
      • Organization does not receive more than 15% of receipts from lobbying activities;

      • Lobbying activities do not compose more than 15% of their activities;

      • Cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year that ended prior to February 15, 2020;

      • Organization does not employ more than 300 employees.

    • Expands PPP eligibility to internet-only news and periodical publishers with more than one physical location, subject to a limitation of no more than 500 employees per physical location or the applicable SBA size standard.

  • Employee Retention Tax Credit (ERTC) has been extended from Q1 and Q2 of 2021, with the addition of Q3 and Q4 2021. For large employers (500+ employees), only wages paid to employees while they are not working because the employer qualifies for the credit are considered qualified wages, while smaller employers (<500 employees) may consider as qualified wages all wages paid while the employer qualifies for the credit.

    • The ERTC amount is 70% of an employee’s qualified wages for each quarter, up to a per-quarter limit of $10,000 of qualified wages paid to an employee. The maximum ERTC for each employee is to remain $7,000 per quarter in 2021 (70% x $10,000 qualified wage limit), with a total maximum 2021 ERTC benefit of $28,000 per employee for all 4 quarters in 2021.

    • The American Rescue Plan Act kept the gross-receipts eligibility comparison introduced in the 2021 Consolidated Appropriations Act, which allows employers to claim the credit if gross receipts for a quarter or the immediately preceding quarter are less than 80% of the same quarter of 2019. If the employer was not in business at the start of the applicable quarter of 2019, the applicable three-month quarter of 2020 may be used. The business-suspension condition, which allows employers to claim the credit if they are partially or fully closed by public health orders, also was retained.

    • Clients can claim the ERTC if they have already claimed a PPP loans or received forgiveness. Congress, in the Consolidated Appropriations Act (CAA) of 2021, removed the limitation on only claiming one or the other. PPP will only account for 2.5 times of client’s monthly payroll expenses and is meant to be spread out over 6 months. This leaves plenty of uncovered wage expenses for claiming ERTC.

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