The American Rescue Plan and Its Effect on Employers

By James V. Thompson 

The American Rescue Plan (ARP) Act, the third and latest coronavirus relief bill, passed both houses of Congress and was signed by President Biden in March.  It provides a new round of stimulus payments and incentives for workers, as well as additional assistance for state and local governments and small businesses.  Just as certain as it provides new hope to unemployed workers, it will also bring  questions and uncertainties to employers on how the U.S. economy will rebuild and grow in the post-Covid era.

Within its $1.9 Trillion price tag, the ARP provides the following provisions affecting employers:

• A third round of economic impact payments for individuals.  Eligible persons (generally, individuals making up to $75,000-80,000 annually or married couples making up to $150,000-160,000 annually) will receive up to $1,400 for individuals or $2,800 for married couples, plus $1,400 for each dependent.  Unlike prior stimulus payments, the ARP Act requires a 2021 “true-up” additional payment, when applicable, based on information the IRS receives mid-year in 2021.  Also, families will get a payment for all dependents claimed on a tax return, not just their qualifying children under age 17.
• Up to $350 billion in emergency funding for state, local, territorial, and Tribal governments.  This is intended to allow state and local governments to cover costs for public health and replace local tax revenue losses.
• A Capital Projects Fund of $10 billion for states, territories, and Tribal governments to cover capital projects such as modernized infrastructure building.
• $10 billion to state and Tribal governments to fund small business credit expansion initiatives.  This is intended to provide capital access programs, facilitate loan participation, boost state venture capital programs, and enable credit guarantee programs.
• Extension of Employee Retention Credit and Paid Leave Credit programs.  This extends the availability of the Employee Retention Credit for small businesses through December 2021.  Small businesses who have had declining revenues or been temporarily closed due to Covid can offset their current payroll tax liabilities by up to $7,000 per employee per quarter for 2021.  As well, through September 2021, small and midsize businesses that offer paid leave to employees who take leave due to illness, quarantine, or caregiving can take dollar-for-dollar tax credit equal to wages of up to $5,000.
• Restaurant relief and additional PPP funds.  A new program provides $28.6 billion in grants for restaurant and bars hurt by the pandemic.  The grants, up to $10 million per company with a limit of $5 million per physical location, can be used to cover payroll, utilities, rent, and other operations expenses.  As well, $7.25 billion is added to the Paycheck Protection Program already established in 2020 stimulus bills.
• Aid to schools.  The bill provides about $122 billion in help for kindergarten through twelfth grade schools through September 2023, intended to reduce class sizes and modify classrooms for social distancing and improved ventilation.  Colleges and universities will receive almost $40 billion for emergency financial aid grants.  An extra $15 billion will go to child care providers in a block grant program through September 30, 2021.  Student loan forgiveness is not included, but any student loan forgiveness between December 30, 2020, and January 1, 2026, will be considered tax-free and not as taxable income.
• Extended unemployment benefits.  The $300 weekly federal supplement to unemployment benefits is extended through September 6, 2021.  As well, Pandemic Unemployment Assistance for self-employed and gig workers, and Pandemic Emergency Unemployment Compensation for other long-term unemployed persons, are extended to allow additional weeks of state unemployment benefits.
• A federal tax waiver on unemployment benefits.  The ARP waives federal income taxes on the first $10,200 of unemployment benefits received in 2020 by middle- and lower-income taxpayers, for benefits through both federal and state unemployment funds.
• A COBRA insurance subsidy.  The ARP provides a 100% subsidy from the federal government for COBRA health insurance premiums, so that laid-off workers can remain on their employer-provided health plans at no cost through September. The subsidy does not apply for those who voluntarily quit their jobs.

So, how will this affect employers?  As they say, the devil is in the details; the overall impact may not be felt for some time.  At the forefront, the obvious positive effect will be in the money provided for businesses to help cover their payroll expenses.  Small business tax credits for employee retention and paid leave programs will also assist smaller operations that are themselves trying to get back on solid financial footing.  Theoretically, they can use the tax credits and benefits to supplement their revenue in order to maintain and grow their workforce.  As well, additional PPP funding and grants for the restaurant industry can help small employers shore up operational losses and pay their current employees, and might also help them afford to bring back laid-off employees or hire additional new workers. Employers can also use the tax credits for extended employee leave to maintain goodwill with current workers who may need such leave time.

For state and local governments, the additional emergency funds will help prop up budgets already stretched thin from lower tax revenues and mounting public assistance requests.  Reports show that at least 26 states had declining tax revenue in the last year, and state and local governments had cut 1.3 million jobs since the pandemic began in early 2020.  With these additional funds available, local employers in the public, as well as private, sector will get some relief to encourage employee retention and job growth.

However, the details of these new benefits may put some pressure on employers who are still trying to regain their fiscal footing, after a year in the slumped Covid economy.  The COBRA health insurance subsidy requires self-insured employers to cover the premium and then seek reimbursement from the federal government.  The ARP Act expanded qualifying reasons for an employee to take the FFCRA leave instituted in 2020:  an employee is now eligible for leave if the worker has been exposed to Covid and awaiting test results (or the employer has requested Covid testing), or if the employer is obtaining Covid immunization.  The federal government is also taking a tightened focus on the tax credits for employee leave, and employers will not get those credits if they are deemed to have discriminated in offering FFCRA leave in favor of highly compensated or full-time employees or based on employment tenure.  Thus, the benefits come with additional strings for employers, at the same time that employers are still attempting to find willing, able, and qualified persons to replenish their workforce.  The federal economy still lacks about 9 million jobs to recover from those jobs lost since the Covid pandemic erupted last spring.

That lagging national economy also suggests the ARP Act’s third round of stimulus payments and extended unemployment benefit payments are still a source of contention.  Proponents argue these payments help workers survive, as not all businesses have reopened and recalled employees back to work and as some workers are still hesitant to return to the workplace at a risk of contracting the Covid virus.  In contrast, opponents argue the stimulus payments and additional unemployment benefits create a financial incentive for individuals not to return to work, if they can receive equal or greater payments while simply staying at home.  Several employers have reported problems in finding available, qualified, and willing job candidates.  As well, those who receive stimulus payments and put the money into savings because they aren’t cash-strapped may dilute the intended economic spending boost.  If spending lags, then business owners don’t necessarily see increased revenue to encourage expanding operations and hiring additional employees.

Notably, the final enacted version of the ARP did not include Sen. Bernie Sanders’ amendment to raise the federal minimum wage to $15.  While the House version had included the minimum wage raise, the Senate could not include such a provision to allow passage on a majority vote within the process of budget reconciliation.  The issue appears destined to arise again, but for now employers are not under a federal mandate to raise wages.

To sum up, the ARP Act does provide additional immediate relief funds for employers, such as the new influx of PPP money, employee retention credits, and state and local government emergency funding.  Past that, the ARP Act focuses on incentives for individual workers, but the credits for businesses may have conditions and limitations that employers must carefully consider.