Latest COVID Relief Extends FFCRA Tax Credits and Other Employment Related Benefits
Wednesday, March 24, 2021
by: MRA - The Management Association

Section: Newsletter Articles

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021, which is the latest COVID-19 emergency relief package providing support for small businesses, schools, health care providers, renters, mental health and substance abuse care, direct stimulus payments, vaccine distribution, and more.

There are a few key provisions affecting employers, including:

Unemployment benefits. Federal supplemental unemployment benefits will be extended to September 6, 2021, at $300 per week. The Act continues to allow for extended unemployment benefits to individuals in nontraditional employment situations (e.g., small business owners, gig workers) and provides additional weeks of federally funded unemployment benefits once state benefits are exhausted, and continues to waive the one week waiting period for benefits. This Act also includes provisions to make the first $10,200 in unemployment benefits tax free for households earning less than $150,000 per year.

Paid family leave and paid emergency sick leave. Mandated benefits under FFCRA ended on December 31, 2020; however, covered private employers and 501(c)(1) government organizations can voluntarily provide paid sick and family leave benefits through September 30, 2021, and still be able to take the associated tax credit. Most of the provisions reflect the original FFCRA; however, there are some key differences to note.

  • Beginning April 1, 2021, the amount of EPSL time is refreshed with 80 hours of paid time through September 30, 2021.
  • Beginning April 1, 2021, the two weeks of unpaid EFMLA is no longer applicable so EFMLA becomes 12 paid weeks (2/3 regular rate of pay up to $200 maximum per day) for eligible reasons. Accordingly, the maximum credit available for EFMLA is increased to $12,000 (previously $10,000) to reflect this change.
  • Beginning April 1, 2021, EPSL and EFMLA will qualify for tax credit when used for the following additional reasons:
    • Employee is seeking or awaiting the results of a diagnostic test or medical diagnosis of COVID-19 after exposure to COVID-19;
    • Employee is obtaining immunization related to COVID–19 or recovering from any injury, disability, illness, or condition related to such immunization.
    • EFMLA can be used for the six qualifying reasons under FFCRA.

Employers are strongly encouraged to communicate with employees on how absences related to COVID-19 will be handled in 2021.

COBRA premium assistance. A 100% subsidy is available to individuals eligible for COBRA health, dental, or vision coverage as a result of involuntary termination or reduction in hours. Employers are required to offer the subsidy to anyone eligible for COBRA coverage during the 6 month period between April 1, 2021, and September 30, 2021, and may take the refundable credit against quarterly Medicare payroll tax liability.

  • An extended COBRA election period was also created to allow those previously eligible for coverage, due to involuntary job loss or reduction in hours, the option to receive the subsidy for the 6 month period. This includes individuals who previously declined coverage or lost it due to nonpayment of premiums.
  • Plan sponsors must provide a notice of availability of the subsidy and special enrollment rights to eligible individuals. The government will issue a model notice within the next 30 days that plan sponsors can use for this purpose.

Flexible spending accounts. Similar to paid family and emergency sick leave, any changes to a company’s FSA are optional. Employers choosing to extend these benefits may make them retroactive if that change is made by the last day of the year following the affected plan year (i.e., December 31st, 2022 for a plan year beginning January 1, 2021). A plan amendment is required for any changes, so consult with your broker or TPA to make the necessary adjustments. Payroll files may also need updated to allow the additional deduction amounts or reimbursement of rolled over funds.

Health Care Flexible Spending Accounts

  • Maximum election amount for 2020 and 2021 is $2,750.
  • Unused funds from the prior year can be carried over for 12 months after the end of the plan year. There is no limit to the amount that can be carried over and the 2 ½ month extension period may be waived.
  • Prospective mid-year changes are allowed without a qualifying event, but refunds are not.
  • Terminated employees may continue to have access to unspent funds without having to elect COBRA coverage.

Dependent Care Flexible Spending Accounts

  • Maximum election amount for married couples filing a joint return is increased to $10,500. Single filers are capped at $5,250.
  • The annual statutory contribution limits for dependent care FSAs remain unchanged at $5,000. Amounts used over $5,000 are subject to the appropriate income taxes.
  • Unused funds may be carried over for up to 12 months following the end of the plan year. Previously, there was no roll-over option for dependent care FSA accounts.
  • Prospective mid-year changes are allowed without a qualifying event, but refunds are not.>
  • Terminated employees may continue to have access to unspent funds without having to elect COBRA coverage.

Employee retention tax credit. The refundable employee retention tax credit, which was established in the CARES Act, was enhanced and extended through December 2021. It covers employers with 500 or fewer employees and provides a refundable payroll tax credit of 70 percent of qualified wages, up to $10,000 per employee per quarter.

Emergency Injury Disaster Loan assistance.The Small Business Association is offering long-term, low-interest loans with priority given to severely impacted small businesses (less than 10 employees). A grant program for bars and restaurants is also included to help cover business and operations costs.

Employer-provided student loan repayment for employees. The CARES Act allowed employers to contribute up to $5,250 toward an employee’s student loan. This provision is extended so payments are excluded from the employee’s income between March 27, 2020, and December 31, 2025.

Work Opportunity Tax Credit (WOTC). This is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment, such as ex-felons, veterans, food-stamp recipients, the long-term unemployed, and individuals with disabilities. The WOTC was set to expire at the end of 2020, however it is now extended through December 31, 2025.