ARPA Tax Credit Provisions Impact Employee Leave and COBRA Coverage

The American Rescue Plan Act (“ARPA”), which was enacted on March 11, 2021, includes provisions for employee paid sick and family leave, and assistance with payment of COBRA premiums for the continuation of health coverage, the costs of which may be recaptured through tax credits.  A summary of these provisions, which will be in effect April 1 – September 30, 2021, follows.

PAID LEAVE PROVISIONS AND TAX CREDITS

FFCRA, Revisited.

The Families First Coronavirus Relief Act (FFCRA) required that  employers with fewer than 500 employees must provide up to 80 hours of emergency paid sick leave, and up to 12 weeks of expanded family medical leave under the Family Medical Leave Act (“FMLA”), to employees who were unable to work due to specific COVID-19 related reasons.  Leave under FFRCA’s paid sick provisions was available to employees at hire; the expanded family medical leave was available to employees who had completed 30 days of employment.  FFCRA also provided payroll tax credits for employers to recapture the costs of qualifying paid leave provided for authorized reasons, so long as employers stayed within statutory limits.  FFCRA ended December 31, 2020.  Starting January 1, 2021, as an incentive for employers to voluntarily provide leave for the reasons established by FFCRA, the payroll tax credit was extended through March 31, 2021.  

ARPA again extends the payroll tax credits under FFCRA for employers that continue to voluntarily provide paid sick and family leave under the terms of FFCRA from April 1 – September 30, 2021.   These provisions still apply only to employers with fewer than 500 employees, but ARPA makes some other changes to former FFCRA leave and pay provisions.

Changes to Paid Leave Under FFCRA.

If a covered employer wishes to take the payroll tax credit for paid leave offered to employees, it is required to comply with the conditions for such leave specified in ARPA.

ARPA provides that employees are eligible for up to 10 days of paid sick leave, from April 1, 2021 – September 30, 2021, regardless of how much time an employee used prior to April 1, 2021.   If offered, employees must be allowed to take paid sick leave for all of the same reasons as set forth under FFCRA.  As a reminder, an employee could take paid sick leave under FFCRA if the employee was unable to work or telework because:

  1. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID–19.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.
  3. The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
  4. The employee is caring for an individual who is subject to either number 1 or 2 above.
  5. The employee is caring for his or her child if the school or place of care of the child is closed, or the childcare provider of such child is unavailable, due to COVID–19 precautions.
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

ARPA expands the reasons for which paid sick leave may be used by changing reason #3 to include taking or awaiting the results of Covid-19 testing, obtaining a Covid-19 vaccination, or recovering from an injury or illness related to a Covid-19 vaccination. 

Although ARPA does not explicitly say that an employee’s 12 weeks of expanded family medical leave also starts over as of April 1, 2021, it seems implied by the fact that an employer may take the payroll tax credit for up to 12 weeks of benefits (see below).  Under ARPA, expanded family medical leave may be used for all the reasons authorized by FFCRA (plus the new testing and vaccine-related reasons), not just the childcare/school closure reason previously available under FFCRA. 

Extension of Tax Credits and Changes to Eligibility.

The payroll tax credits will continue to apply only for leave taken for reasons as set forth under FFCRA and for the expanded reasons related to Covid-19 testing and vaccinations.  ARPA also removes the requirement that the first 2 weeks of family leave be unpaid.  

In order for an employer to take payroll tax credits for leave provided, the employer must comply with statutory pay limits (up to $511 per day for reasons 1-3; up to $200 per day for reasons 4-6; increase from $10,000 to $12,000 per employee for eligible family leave) and allow employees to take leave for all authorized reasons.   

ARPA also introduces a nondiscrimination clause.  An employer that chooses to provide leave voluntarily will not be eligible for the payroll tax credit if it discriminates in favor of highly compensated employees, full-time employees, or on the basis of tenure. Thus, although employers are not required to provide this leave, and may choose whether to provide paid sick leave, expanded family medical leave, or both, they must provide the same benefit to all employees, regardless of status or tenure.

What Employers Should Do Now.

An employer who wishes to offer paid sick and family leave to employees under ARPA and take advantage of the extended payroll tax credits beginning April 1, 2021, should notify employees of the availability of this benefit and update policies and request forms in accordance with ARPA’s changes from FFCRA standards.  Employers should confer with their tax advisors regarding any changes to record keeping and other requirements for obtaining the payroll tax credit. 

COBRA SUBSIDY

ARPA also creates a subsidy for COBRA premium payment assistance to eligible employees under which the group health plan (meaning, the employer or, in some instances, the insurance carrier) is required to pay the full COBRA premiums on behalf of employees and their qualifying family members and then recovers that cost through quarterly payroll tax credits. 

To take advantage of this subsidy, the employees must still be within their original 18-month COBRA coverage period, and it only is available if the employee lost group health care coverage due to an involuntary job loss or reduction in work hours. This includes employees who were terminated within 18 months before April 1, 2021, and includes those who previously declined or discontinued COBRA coverage but are still within their original COBRA coverage period.  This subsidy is available only with respect to COBRA premiums paid from April 1 - September 30, 2021.

The subsidy applies to group healthcare plans that are subject to Federal COBRA (or state specific mini-COBRA programs, like the one in Maryland).  Covered plans may include medical, dental, and vision coverage, but not health savings accounts or flexible savings accounts.  Although not required under ARPA, employers may also permit individuals eligible for the COBRA subsidy to change their plan to elect a different option offered by the employer, so long as the new coverage has a lower premium than the original coverage.

The subsidy is not available for employees who voluntarily left their job, nor is it available for people who are eligible for Medicare or another group health plan. The election period is either 60 or 90 days after receipt of notification from the plan sponsor, depending on whether the participant became eligible for COBRA coverage before or after April 1, 2021, but subsidy coverage ends at the conclusion of an employee’s 18-month COBRA period, even if that date falls before September 30, 2021.   

Compliance with COBRA subsidy requirements is mandatory for covered group health plan sponsors.  Employers should review their plans with their insurance carriers or plan administrators to determine which plans are covered by COBRA subsidy requirements, and to facilitate premium payment for all employees who enroll.

What Employers Should Do Now.

Employers who are group health plan sponsors with participants or beneficiaries eligible for the COBRA subsidy, must notify former employees and beneficiaries of the availability of premium assistance under the COBRA subsidy no later than May 31, 2021 and provide notice before the subsidy expires on the earlier of September 30, 2021, or the end of the 18-month COBRA period.

The DOL is expected to release guidance and model language for these notices by April 10, 2021, and is expected to issue guidance on the use of the tax credits, and other notice obligations, soon.  However, employers should take steps now to identify former plan participants and beneficiaries who are still within the 18-month COBRA (or mini-COBRA) eligibility period and qualify for the subsidy based on their reason for separation, so that appropriate notice can be given when the time comes.  This means looking back 18 months to review the reasons for separation for all employees.  

In addition, employers should coordinate with their insurance carriers and plan administrators to ensure notice will be timely sent and to determine any additional required steps.   Also, employers should speak with their accountants or tax advisors regarding the tax implications and IRS requirements of this ARPA program.  Employers should also continue to maintain all supporting documentation regarding an employee’s initial termination, or reduction in hours, and COBRA election.

For more information or if you have additional questions, contact Melissa Jones, Keri Kemmerzell, or another member of the Tydings employment and labor law practice.

This has been prepared by Tydings for informational purposes only and does not constitute legal advice.