On March 11, 2021, President Biden signed the “American Rescue Plan Act of 2021” into law. The latest COVID-19 relief law will provide direct assistance to many Americans, namely through $1400 in income tax rebates for eligible individuals and an increased child tax credit. The legislation also contains many provisions related to health insurance coverage and group employee benefit plans. These include direct federal subsidies for both Federal COBRA and state continuation coverage, and individual insurance policies purchased through the health insurance exchange marketplaces.
COBRA Continuation Coverage Subsidies
The “Preserving Health Benefits for Workers” section of the law creates a total premium subsidy for COBRA-eligible individuals between April 1, 2021, and September 30, 2021. Individuals qualify for this subsidy when they involuntarily lose employer-sponsored coverage. They can receive subsidized COBRA coverage as long as they do not have another offer of employer-sponsored coverage or access to Medicare, or through September 30, 2021, whichever is sooner.
Generally, the subsidy will flow directly to the employer group plan sponsor in the form of a payroll tax credit against the Section 3111(b) Medicare tax. The credit includes the entire COBRA premium, including the 2% administrative fee, and is refundable. If an employer’s COBRA premium costs for affected plan participants exceed their Medicare payroll tax liability, they can file to get direct payment of the remaining credit amount.
Eligible individuals need notification about the new subsidies. People who may be eligible include:
- those who have already elected COBRA as of April 1, 2021,
- people who did not elect COBRA on or before April 1, 2021, but would otherwise be eligible if they had (this status would seem to apply to people whose COBRA election deadline has been extended due to the COVID-19 “outbreak period” regulation), and
- people who elected COBRA initially but then discontinued their coverage before April 1, 2021, as long as they are still within their original maximum coverage period.
Individuals meeting these criteria may make a COBRA election beginning on April 1, 2021 and ending 60 days after they are notified about the extended election period. Depending on circumstances, enrolled individuals may be able to change their existing elections during this time. If someone becomes newly eligible for COBRA after April 1, 2021, then normal election rules apply and their coverage will be subsidized through September 30, 2021 as well.
The IRS and US Department of Labor will issue guidance to clarify implementation procedures in the near-term future. One of the expected components is more information about how the new COBRA subsidies should interface with the Administration’s recent Notice 2021-01 concerning COBRA election and payment extensions during the COVID-19 “outbreak period.” They also plan to issue model notices within 30 days or less.
Expansion of Premium Tax Credits Through Health Insurance Exchange Marketplaces
The American Rescue Plan expands the eligibility limits for individual market premium tax credits for people who purchase coverage through the health insurance exchange marketplace during 2021 and 2022. Typically, people with family incomes that exceed 400% of the federal poverty level do not qualify for subsidized exchange-based coverage. The new law expands the availability of premium tax credits to people regardless of income. For the next two years, no enrollee will pay no more than 8.5% of their income for individual market exchange-based premiums. That means that the value of the subsidies will vary by a person’s family income, but far more people will get at least some tax break if they elect this type of coverage. Individuals who currently have an exchange-based plan will be able to start claiming any extra subsidy immediately, or they can wait and claim it on their 2021 tax return.
The new law will temporarily remove unemployment benefit income calculations when it comes to determining subsidy eligibility levels and prevents people whose income levels exceeded 400% of the poverty level in 2020 from having to pay back excess premium tax credit payments.
Family and Sick Leave Provisions and Tax Credits
The credits for paid sick and family leave created by the Families First Coronavirus Response Act (FFCRA) are extended to September 30, 2021. If an employer chooses to extend this leave program to eligible employees, they can continue to claim a payroll tax credit to cover the cost of the employee’s paid leave wages and health insurance premium expenses through the end of the third quarter. The law also expands the overall paid leave tax credit eligibility to 501(c)(1) governmental organizations and increases the tax credit limit on the expanded family leave to $12,000. Concerning the paid sick leave portion of the law, the American Rescue Plan resets the two-week leave limit as of March 31, 2021. It further expands the sick leave eligibility criteria to include days off related to a COVID-19 vaccination. It also expands the paid family leave criteria to include all of the reasons under which an employee might be eligible for the FFCRA paid sick leave. Finally, the new law creates a non-discrimination requirement to prevent employers that discriminate in favor of highly-compensated employees, full or part-time status, or length of employee tenure from claiming the credit.
Dependent Care Assistance Programs
For 2021, employers may allow employees to increase their Section 125 cafeteria plan deductions to $10,500 if they participate in a dependent care assistance program. This is a significant increase from the standard $5,000. Employers must adopt this provision through a modification to their Section 125 plan document for employees to increase their elected funds for their dependent-care FSA — it is not mandatory for employers that offer dependent care assistance programs to allow this change.
Business-Based Economic Relief That Affects Health Insurance Coverage
The new law contains many avenues of business-based economic relief that employers can use to offset group health insurance coverage costs. It extends the employee retention tax credit, initially created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, through December 31, 2021. Using this credit, eligible employers may claim a payroll tax credit for paying qualified wages and offering health insurance coverage to employees. The maximum credit amount is $7000 per quarter for each employee, and businesses can use it to pay for both salary and health insurance benefit costs.
The law also increases Paycheck Protection Program (PPP) funding by $7.3 billion and expands program eligibility to many types of non-profit employers. The PPP targets small business owners, including self-employed people, and eligible loan recipients may use the funding to pay wages and health insurance costs. Those costs are forgivable expenses when it comes to loan repayment. Besides that, the law provides $15B in new funding to the Small Business Administration’s Targeted Economic Injury Disaster Loan program. This program helps entities with ten or fewer employees experiencing 50% or more revenue disruption. Another $1.3B will go to a program directed at small business owners who had to shut their doors during the pandemic. Large amounts of targeted assistance for specific industries that have fared worst over the past 12 months, like restaurants, are also a part of the new law.
The “pandemic unemployment assistance” program, which was about to expire, got an extension through September 6, 2021. This program helps independent contractors, self-employed people, and other individuals who do not typically qualify for state-based unemployment assistance may now benefit from federal aid for up to a total of 79 weeks. The amount of this extra, temporary federal benefit will be $300 per week between now and the September 6 expiration date.
Earlier COVID-19 stimulus legislation also created other forms of extra unemployment relief for people who have both W-2 wage income and self-employment income but are now out-of-work and people who have exhausted state-level assistance. These benefits also will extend through September 6.
We expect the Biden Administration to issue a additional guidance on all of the above, and will update this information accordingly at that time. Until then, any questions, please contact us: firstname.lastname@example.org.