The American Rescue Plan Act was signed into law in March of 2021 to provide immediate and direct relief to families and workers impacted by the ongoing COVID-19 pandemic. Along with extending the Employee Retention Credit (ERC) and the Families First Coronavirus Response Act (FFCRA), the American Rescue Plan Act includes unemployment compensation and tax credits to provide support to both employers and individuals.
Here’s how these important legislation updates impact your payroll:
1. Employee Retention Credit (ERC)
The credit, which had previously been extended until June 30, 2021, has now been further extended until December 31, 2021. Small businesses can now offset their current payroll tax liabilities up to the credit limit per employee per quarter. The credit remains at 70% of qualified wages up to $10,000 per quarter per employee. The max credit for 2021 would be $28,000 per employee.
All eligible employers must qualify by having their operation fully or partially suspended due to orders from a governmental authority related to COVID-19, or if the business can show that gross receipts for a calendar quarter are less than 80% of gross receipts from the same calendar quarter in 2019.
2. Families First Coronavirus Response Act (FFCRA)
FFCRA has been extended till September 30, 2021. Two additional payout reasons have been added:
- Available for employees who are unable to work because they are obtaining a COVID vaccine or are recovering from injury or illness related to the vaccine (side effects).
- Available for employees who are unable to work because they are seeking or waiting for results of a diagnostic test or awaiting a medical diagnosis.
The number of weeks for paid family leave under the FFCRA has increased from 10 weeks to 12 weeks, thereby increasing the wage limit for paid family leave payments from $10,000 per employee to $12,000.
The Act also resets FFCRA sick leave rights to zero on April 1, 2021. The number of hours taken/paid out prior to that date do not count against future hours taken.
3. Dependent Care
The American Rescue Plan Act increases the Dependent Care limit for 2021 from $5,000 to $10,500 ($5,250 for married filing separately). This employee-level benefit provides individuals with the option to defer taxes on childcare costs up to $10,500.
In addition to these payroll updates, the American Rescue Plan offers additional individual support, including Economic Impact Payments, State Small Business Credit Initiative, Emergency Rental Assistance, and a Homeowner Assistance Fund. The Paycheck Protection Program (PPP) Act of 2021 also passed in March of 2021 and extends the application deadline for small businesses to May 31, 2021.
With so many legislation changes, staying compliant within your payroll and HR system may be a challenge. By using an HR and payroll management solution that automatically updates to include new legislation, you can take the guesswork out of your payroll and help stay compliant with ease.
Editor's note: This blog post was deemed accurate at the time of publication and may not reflect recent changes related to payroll law. The information provided in this blog does not, and is not intended to, constitute legal or financial advice.