The American Rescue Plan Act, the new stimulus package passed last week, includes several provisions that employers need to be aware of and address within their Human Resources procedures.
The most significant is a 100% COBRA subsidy that employers must provide to Assistance Eligible Individuals (AEIs), which are generally employees who experience involuntary termination (for reasons other than gross misconduct) or a reduction in hours that disqualifies them from the employee benefit plan.
The Act mandates that employers must pay the entire COBRA premiums for AEIs during a six-month period, beginning on April 1, 2021 and ending on September 30, 2021.
The Act does not extend the 18-month COBRA period, but it does provide additional relief to participants in the following ways:
- AEIs who declined or dropped COBRA coverage before April 1 are allowed to elect into the COBRA plan for the remainder of their covered period, as long as it extends into the six-month subsidy window. For example, if an employee was terminated on January 1, 2021 and wants to now elect COBRA coverage effective April 1, he or she will be entitled to coverage for the remaining 15 months of COBRA coverage, including six months paid by the employer. Participants will have 60 days from the date they receive the notice to make this election.
- AEIs who make a COBRA premium payment during the subsidy period must be reimbursed by the employer within 60 days of receipt of the payment.
- Group health plans are allowed (but not required) to offer a lower cost COBRA option to AEIs. Individuals will have 90 days from the date they receive the notice to make this election. Contact your plan administrator if you would like to consider this option for your plan.
Payroll tax credits against the employer share of federal employment taxes will be available to employers to cover the cost of these subsidies. The credit is fully refundable and may be advanced, or the employer can choose to not deposit the amount of Medicare payroll taxes they anticipate to be refundable. The maximum credit is limited to the amount of Medicare payroll taxes paid in a quarter.
Under the language of the Act, these credits will be reduced by credits received by the employer through the paid sick and family leave credit and the employee retention credit. Grassi’s Tax advisors will keep you informed as new guidance is released on this topic.
AEIs will no longer be eligible for the subsidy when their COBRA coverage expires or when they become eligible for coverage under another group health plan, whichever is earlier. Individuals could be subject to penalties if they do not notify the former employer of their new coverage.
Employers should continue to use existing COBRA notices for voluntary and other non-AEI terminations. For purposes of AEIs, the Act stipulates the following new election notices:
- COBRA general election notice that describes the 100% subsidy must be used between April 1 and September 30, 2021 for AEIs only.
- A new notice must be provided to AEIs who previously declined or dropped COBRA coverage, if they meet the election eligibility requirements described above.
- By May 31, 2021, employers must provide a notice of the 100% subsidy to all currently enrolled AEIs.
- A notice reminding AEIs that the subsidy will end on September 30 must be provided within 15-45 days prior to the expiration. This notice is only required for AEIs that are still covered under the subsidy at the time of notice.
The Department of Labor is expected to issue new model election notices within 30 days of the Act’s enactment, with the reminder notice expected by mid-May.
Expanded Paid Leave Credits
The Act also extends the availability of paid sick and family leave credits under the Families First Coronavirus Response Act (FFCRA). Eligible employers (generally those with fewer than 500 employees) who choose to continue FFCRA benefits can receive the credits through September 30, 2021 (formerly March 31, 2021).
The maximum tax credit for family leave wages was increased under the Act from $200 per day and $10,000 per employee to $12,000 of paid family leave wages per employee.
The Act also expands the definition of paid leave wages that are eligible for the credit, including time taken to obtain the COVID-19 immunization, recover from an injury caused by the immunization and/or quarantine or care for someone under an isolation order due to COVID-19.
Under the Act, employers are prohibited from receiving this tax credit for wages that are covered in a forgiven Paycheck Protection Program loan, a grant under certain provisions of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act or a restaurant revitalization grant under the American Rescue Plan Act.
Grassi is Here to Help
Grassi has a full team of HR Consulting professionals who can help you navigate these mandates and changes. Please contact your Grassi advisor or Jeff Agranoff, HR Consulting Principal, to receive the guidance and support you need.