Overview 

On March 11, 2021, President Biden signed a sweeping $1.9 trillion COVID-19 economic relief package, known as the American Rescue Plan Act of 2021, into law. While this stimulus bill touches on myriad different areas: including direct $1,400 payments to individuals, increasing access to health care, assistance to K-12 schools, and improving national infrastructure, to name a few, the Act contains several provisions of note to signatory contractors.

Extension of Tax Credits for Employers Who Voluntarily Provide E-PSL and E-FMLA

As we previously reported, the Families First Coronavirus Response Act (FFCRA), which required certain employers with 500 or fewer employees to provide Emergency Paid Sick Leave (E-PSL) and Emergency Paid Family Medical Leave (E-FMLA) to employees, expired on Dec. 31, 2020.

However, given the ongoing nature of the pandemic, former President Trump signed the 2021 Consolidated Appropriations Act (CAA), which permitted employers to choose whether to provide the leave on a voluntary basis. If an employer elected to continue providing E-PSL and E-FMLA, they would be eligible for payroll tax credits. Prior to enactment of the American Rescue Plan Act, this option was available until March 31, 2021.

Changes to E-PSL (April 1 to Sept. 30)

The American Rescue Plan Act extends the availability of tax credits, which were originally enacted by the FFCRA, for eligible employers who voluntarily provide E-PSL through Sept. 30, 2021. It is important to note that the new law “resets” the amount of E-PSL available to employees (whose employer elects to provide E-PSL).

This means that, from April 1 to Sept. 30, employers can voluntarily provide employees with an additional allotment of 80 hours of E-PSL, even if the employee had previously taken 80 hours of E-PSL in 2020.

In addition to providing a new (voluntary) bank of 80 hours of E-PSL, the American Rescue Plan Act also adds new reasons for E-PSL, including:

  1. Awaiting the results of a COVID-19 test due to a COVID-19 exposure or because “the employee’s employer has requested such test or diagnosis.”
  1. “The employee is obtaining immunization related to COVID–19.”
  1. The employee is “recovering from any injury, disability, illness, or condition related to [a COVID-19] immunization.” 

Under the Act, employers may now claim tax credits for E-PSL for any of the reasons originally set forth under the FFCRA, in addition to the three expanded reasons mentioned above. 

Changes to E-FMLA (April 1 to Sept. 30)

The American Rescue Plan Act extends the availability of tax credits for eligible employers who voluntarily provide E-FMLA to employees from April 1 to Sept. 30, even if they already exhausted their entitlement under the FFCRA and CAA. That is, effective April 1, 2021, employees are eligible for another 12-week allotment of E-FMLA if the employer chooses to voluntarily provide such leave.

The American Rescue Plan Act expands the E-FMLA entitlement to a full 12-weeks of pay by: (1) increasing the aggregate cap for tax credits from $10,000 to $12,000 per employee and (2) eliminating the requirement that the first 10 days of E-FMLA is unpaid.

The American Rescue Plan Act also appears to expand the coverage of E-FMLA to cover all of the same qualifying reasons as E-PSL, including the new reasons articulated above (employer-mandating testing, COVID-19 vaccines, and complications related to the vaccine). Remember, though, the available tax credit per employee is still limited to 2/3 the employee’s “regular rate of pay,” up to a maximum of $200 per day for all reasons for leave.

Additional Tax Credit for Certain Amounts Paid Under Certain Collective Bargaining Agreements.

The American Rescue Plan Act also includes an additional tax credit for certain “amounts paid under certain collectively bargained agreements,” including: (1) pension plan contributions and (2) apprenticeship fund contributions that are allocable to E-PSL and E-FMLA. The Act is careful to limit the tax credit, though, to those amounts “required to be made pursuant to the terms of a [CBA].” Although we will likely receive additional guidance from the DOL, the Act seems to make clear that if the CBA or the Plan doesn’t require a pension fund or apprenticeship fund contribution for E-PSL or E-FMLA, then the tax credit would not be available.

With respect to pension fund contributions, the Act defines “collectively bargained defined benefit pension plans contributions” to mean contributions which:

  1. Are paid or incurred by an employer during the calendar quarter on behalf of its employees to a defined benefit plan.

The Act specifies that the amount of “collectively bargained defined benefit pension plan contributions” allocated to E-PSL or E-FMLA for a calendar quarter “shall be the product of (i) the pension contribution rate (expressed as an hourly rate), and (ii) the number of hours for which qualified [E-PSL or E-FMLA] wages were provided to employees covered under the collective bargaining agreement…during the calendar quarter.”

New Anti-Retaliation and Discrimination Provisions

Under the American Rescue Plan Act, employers are disqualified from receiving FFCRA payroll tax credits if they: (1) fail to comply with the FFCRA, including its anti-retaliation provisions; or (2) discriminate in favor of highly compensated employees, full-time employees or employees on the basis of employment tenure with respect to leave.

Bottom Line

It is important to remember that, since Dec. 31, 2020, providing E-PSL and E-FMLA for COVID-19 is voluntary. The American Rescue Plan Act only extends the availability of tax credits from April 1 to Sept. 30 for those contractors who have voluntarily decided to continue to offer E-PSL and E-FMLA.

Given the changes to E-PSL and E-FMLA that go into effect on April 1, contractors that decide to continue offering E-PSL and E-FMLA on a voluntary basis should ensure that they are complying with each of these provisions in order to ensure that they receive the tax credits.