The American Rescue Plan Act of 2021 (ARPA) is an Emergency Legislative Package to Fund Vaccinations, Provide Immediate, Direct Relief to Families Bearing the Brunt of the COVID-19 Crisis, and Support Struggling Communities. ARPA was signed into law by President Joe Biden on March 11, 2021, and it builds upon the directives of the CARES Act from March of 2020, and the Consolidated Appropriations Act from December of 2020. During this episode of The Tip Share, RASI Compliance Director, Brian Smith, and RASI Director of Client Advisory Services, Sydney Lynn, highlight the various Tax Credits behind ARPA, which could be beneficial for restaurant owners across the nation.
What other Tax Credits besides the Employee Retention Tax credit (ERTC) were enacted by ARPA?
- Cobra Premium Subsidy (new)
How Does The New Cobra Tax Credit Impact A Restaurant Owner?
Under ARPA an employer must pay the cobra premiums for assistance eligible employees under certain circumstances. When an employer is required to pay the Cobra premiums for an assistance eligible employee, the employer is entitled to reimbursement on a dollar-for-dollar basis through a refundable payroll tax credit against employer-paid Medicare taxes. The tax credit will be applied at the end of each quarter on form 941 and will be treated as an overpayment of taxes for the quarter and refunded to the business.
How long are employers entitled to receive a tax credit on their quarterly 941 for paying out Cobra premiums for assistance eligible employees?
ARPA provides 100% Cobra Premium Subsidy for a six-month period only, so employers are eligible for the Tax Credits on their Quarter 2 and Quarter 3 941s, which covers the timeframe of April 1, 2021, through September 30, 2021.
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EPSL AND PFMLA EXTENSIONS AND EXPANSIONS
The Consolidated Appropriations Act of 2021 extended the Tax Credit only from January 1st, 2021 through March 31st, 2021. Employers are not required to provide leave, but if they do provide employees leave for a qualified reason on a *uniform and equitable basis* (meaning employers can’t just pick and choose who they apply it to), they’re entitled to a Tax Credit.
ARPA has extended the Tax Credit under Emergency Paid Sick Leave (EPSL) and Paid Family Medical Leave (PFMLA) from April 1, 2021, through September 30, 2021. The Tax Credit is still equal to 100% of the eligible wages paid, up to the maximum amount, and the employer paid Payroll Taxes which is now both Social Security and Medicare; with this, there’s a larger credit because there are more taxes involved.
What does the EPSL and PFMLA Expansion actually mean for employers?
ARPA expanded the qualifying reasons for Paid Sick Leave to include seeking or awaiting the results of a COVID-19 test or diagnosis if the employee has been exposed to COVID-19 or the employer requested the test or diagnosis. Additionally, a qualifying reason for Paid Sick Leave now includes receiving a COVID-19 vaccine or recovering from an injury, illness, disability, or medical condition associated with the vaccine. The intention is that allowing employees to get paid to get the vaccine will hopefully encourage people to get the vaccine, and then the employer will get a Tax Credit if they choose to pay.
Are all employers eligible for the tax credits under the EPSL or the paid family Medical Leave Act?
An ineligible employer is a business that is a tax-exempt organization with fewer than 500 employees.