In the early morning hours of February 27, the House of Representatives narrowly said goodbye HR 1319, the American rescue plan law (the “rescue plan”) with 219 votes to 212. The Senate will now take up the comprehensive stimulus package worth $ 1.9 trillion later this week. Legislators want a final version of the bill next week before federal unemployment benefits for about 10 million Americans expire on March 14.
Groom previously posted a warning detailing the rescue plan’s pension reserves Here. Below, we review the other key provisions in the package, including COBRA Subsidies, Affordable Care Act (“ACA”) Subsidies, and Notable Tax Provisions.
The rescue plan includes temporary COBRA subsidies for COBRA-qualified beneficiaries if the employee’s qualifying event was an involuntary termination of employment or a reduction in working hours. The subsidies would apply to an “eligible person”, which appears to include both an employee and family members who voted or will vote for COBRA. The rescue plan allows beneficiaries to pay only 15% of the COBRA premium, with the remaining 85% paid by the employer, plan or insurer and reimbursed by the government through a refundable FICA tax credit.
The original legislation, published by the Committees on Paths and Means, and Education and Labor, provided that the tax credit would be claimed by the employer for self-insured coverage, the insurer for insured coverage, and the plan for a multi-employer plan. This division could have prevented an employer with an insured plan from receiving the proceeds from the credit because the insurer was the only entity that could claim the tax credit. An amendment passed by the House of Representatives and included in the bailout plan approved by the House of Representatives addressed this issue by changing the language to reflect the employer is the entity that claims the tax credit for both insured and self-financed insurance if the employer’s group health insurance is COBRA Code, ERISA or PHSA (similar to the 2009 ARRA COBRA grant rules).
At this point in time, the subsidy is expected to commence for insurance periods beginning April 1, 2021 and ending September 30, 2021. The subsidy would end sooner if the eligible beneficiary’s maximum COBRA coverage period ends or if the individual is eligible for another group health insurance or Medicare. If a person pays more than 15% of the premium during this time, the employer, plan or insurer must reimburse the deductible.
The rescue plan also offers additional entry options for people who have involuntarily terminated their employment or reduced their working hours in the past 18 months and who did not choose COBRA or left COBRA on time. These individuals would have a new term of 60 days from the date they received a new required COBRA notice. In addition, employers would be allowed to allow beneficiaries to change choices to other plan options with the same or lower cost premiums (this is optional).
The rescue plan requires employers to update COBRA notices sent to beneficiaries to describe the grant and to issue extended COBRA election notices within 60 days of the effective date. Otherwise it would be considered a violation of the COBRA notification requirements. Employers must also submit a notice of termination before the contribution grant expires. Legislation defines the content of these communications and directs the Minister of Labor to publish sample communications.
Aid to the Affordable Care Act
The rescue plan makes significant but temporary changes to the existing ACA premium subsidies. For 2021 and 2022, the bill would remove the income cap on eligibility for premium tax credits, which is currently set at 400% of the federal poverty line, and increase the size of the premium tax credit by decreasing the amount a person must contribute towards coverage costs. While raising the income limit extends the availability of subsidies to many more households, the bill includes a requirement that individuals contribute a percentage of their income towards coverage. This percentage is currently 8.5% of household income for those with an income of 400% or more. That is, the more a person earns, the more they are expected to contribute to the cost of insurance. Also, because the amount of premium tax credits available will vary based on insurance costs, there will be a level of income where the required contribution of the person will exceed the insurance costs and there will be no premium tax credit available.
The bill also provides special support for people receiving unemployment benefits. For 2021, a taxpayer receiving or approved to receive Unemployment Benefit for a week or more would be treated as eligible, and any income above 133% of the state poverty line would not need to be considered when determining the taxpayer’s contribution rate. Since the contribution amount for income up to 150% of the federal poverty line would be zero according to the law, recipients of unemployment benefit would not be expected to contribute to the costs of the eligible insurance. The bill also suspends repayment of excess subsidies for 2020.
Tax and unemployment regulations
The rescue plan also includes the following notable provisions on tax and unemployment renewal;
Employee Loyalty Loan. The law would extend the availability of the employee loyalty credit under the CARES Act for an additional two quarters from July 1, 2021 to December 31, 2021. After June 30, 2021, your employer’s Medicare Hospital Insurance (“HI”) credit will be valid. Taxes instead of Social Security Old Age, Survivors’ and Disability Insurance (“OASDI”) taxes. For employers with insufficient tax liability, the credit would still be refundable. The Consolidated Appropriations Act (“CAA”) passed in December 2020 had previously extended the ERTC to June 30, 2021, increased the credit percentage from 50% to 70%, and raised the limit for eligible wages per employee to US $ 10,000 per quarter and expanded the suitability of skilled employers.
Credits for paid sick leave and family leave. The law would also extend the availability of reimbursable credits for paid sick leave as well as family and sick leave until September 30, 2021. After March 31, 2021, credits would change, including increasing the maximum wage that is used to calculate credit, increasing the maximum number of sick days an employer can count toward credit, and allowing vacation time for COVID vaccinations for the Crediting is taken into account. Like the employee loyalty credit, the credit will be offset against the employer’s KV taxes after March 31, 2021 instead of the OASDI taxes. The obligation to take paid leave remains voluntary, as was the case in the CAA, which extended the paid sick leave and family leave credit – but not the employer mandate – until March 31, 2021.
FSAs in need of care. Legislation would raise the FSA’s dependent care limit from $ 5,000 to $ 10,500.
Individual tax regulations. The bill also includes individual tax rules designed to boost the economy:
- One-time checks of US $ 1,400 for individuals earning less than US $ 75,000 (US $ 2,800 for joint applicants earning less than US $ 150,000) with US $ 1,400 for each dependent;
- For 2021 only, an extension of the child discount for individuals with incomes less than $ 75,000 ($ 112,500 for head of household and $ 150,000 for shared files), consisting of:
- Balance increased from $ 2,000 per child to $ 3,000 per child over 6 years of age and $ 3,600 per child under 6 years of age;
- Eligibility for 17-year-old children; and
- make the balance fully refundable; and
- An extension of the income tax deduction.
Unemployment benefit. The bill would extend federal temporary unemployment benefits through August 29, 2021, increasing it to $ 400 per week.
The bailout plan is expected to be passed by the Senate later this week and then sent back to the House of Representatives for another vote on the revised bill.
According to the Senate budget balancing rules, with which the Democrats pass the bill without Republican support, provisions that are not directly related to the federal budget can be brought to the Senate under the so-called “Byrd Rule”. On March 1, the Senate MP ruled that provisions relating to COBRA tax subsidies and multiple employer pensions are outside the Byrd Ruler’s Rules of Procedure. Previously, the Senate MP had ruled that a provision in the House of Representatives bill that increases the federal minimum wage to $ 15 an hour is subject to a Byrd rule. The version of the bill passed by the House of Representatives includes the $ 15 minimum wage requirement, but the Senate is expected to repeal it before the bill is passed, and the Senate is likely to make other changes as well. This means that after the Senate has passed, the House of Representatives will have to vote again on the bill.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.