The American Rescue Plan Act of 2021 (ARPA) was signed into law by President Biden on March 11, 2021. Below is a summary of the provisions of ARPA that affect businesses.
Paycheck Protection Program (PPP) Loan Modifications
The ARPA provides an additional $7.25 billion in funding for the PPP loans and expands eligibility to more businesses. The application period was not, however, extended beyond March 31, 2021.
Amounts used from First Draw or Second Draw PPP loans for premiums used to determine the refundable tax credit under the COBRA Premium Subsidy are eligible expenses for loan forgiveness.
COBRA Premium Subsidy
The ARPA provides Assistance-Eligible Individuals (AEIs) a 100% subsidy for COBRA premiums for any period of COBRA coverage during the period beginning April 1, 2021 and ending September 30, 2021 (“Covered Period”).
Eligibility. An AEI is a COBRA qualified beneficiary (i.e., employee, former employee, covered spouse, or covered dependent) who is eligible for and elects COBRA coverage during the Covered Period due to a qualifying event of involuntary termination of employment or reduction of hours.
Extended election period. Individuals who do not have a COBRA election in effect on April 1, 2021, but would be an AEI if they did, are eligible for the subsidy. Furthermore, individuals who elected but discontinued COBRA coverage before April 1, 2021 are eligible if they would otherwise be an AEI and are still within their maximum period of coverage. Individuals meeting these criteria may make a COBRA election beginning April 1, 2021 and ending 60 days after they are provided required notification of the extended election period.
COBRA coverage elected during the extended election period will commence with the first period of coverage beginning on or after April 1, 2021 and may not extend beyond the AEI's original maximum period of coverage.
Duration. The subsidy is available for any period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021. Eligibility may end earlier, however, if the qualified beneficiary's maximum period of coverage ends before September 30, 2021 or if the qualified beneficiary becomes eligible for coverage under another group health plan or Medicare.
Plan enrollment option. Group health plan sponsors may, but are not required to, allow AEIs to elect to enroll in different coverage. Enrollment must occur within 90 days after the date of notice informing the individual of the enrollment option. Enrollment in different coverage may be permitted only if:
- the premium does not exceed the premium for the coverage in which the individual was enrolled at the time of the qualifying event,
- the different coverage is also offered to similarly situated active employees at the time of the election, and
- the different coverage is not coverage that provides only excepted benefits, or is a qualified small employer health reimbursement arrangement or health flexible spending arrangement.
Notices from individuals to group health plan. AEIs must notify the group health plan if they cease to be eligible for the subsidy because they become eligible for another group health plan or Medicare. Notices must be provided in the time and manner specified by the Department of Labor. Penalties of $250 (or more for intentional failures) may be assessed for failure to provide such notification. No penalties will be assessed for failures due to reasonable cause.
Required notices to AEIs. Group health plans must provide the following notices to AEIs:
- Notice of assistance availability. Informs AEIs of the availability of the subsidy and the option to enroll in different coverage (if permitted by the employer). Must be provided to individuals who become eligible to elect COBRA during the period beginning April 1, 2021 and ending September 30, 2021. This notice requirement may be met by amending existing notices or including a separate document along with them. Specific content requirements apply.
- Notice of extended election period. Must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021.
- Notice of expiration of subsidy. Must be provided between 45 and 15 days before the date on which an individual's subsidy will expire, unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare.
The Department of Labor is to issue model notices within 30 days of enactment of the ARPA.
Refundable tax credit. Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under Code Sec. 6402(a) and Code Sec. 6413(b). Furthermore, the quarterly credit may be paid in advance.
Coordination with HCTC. Effective for tax years ending after the date of enactment, AEIs are not eligible for the health coverage tax credit (HCTC) under Code Sec. 35(g) for any period of coverage in which they receive a COBRA subsidy.
Exclusion from income. Effective for tax years ending after the date of enactment, subsidy amounts will not be included in the gross income of AEIs.
Targeted Economic Injury Disaster Loan Advances
The ARPA provides for targeted economic injury disaster loan (EIDL) advances from the Small Business Administration (SBA) to eligible small businesses. Amounts received as targeted EIDL advances are not included in the gross income of the business that receives the advance and all expenses are deductible.
Of the total appropriated for EIDL advances, $5 billion has been designated for businesses that have suffered a greater than 50% reduction in revenue and employ not more than 10 employees. The maximum advance for this group is limited to $5,000 per business.
Restaurant Revitalization Grants
Under ARPA, eligible restaurants, food trucks, and similar businesses may receive restaurant revitalization grants from the SBA. State or local government operated businesses, any company that as of March 13, 2020 operated in more than 20 locations (whether or not the locations do business under the same name), any publicly-traded company, and any business that has applied or received a grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act are not eligible. The maximum amount given to any business that meets the eligibility and certification requirements is $10 million and limited to $5 million per physical location. The grant may be used for payroll costs, mortgage payments, rent, utilities, maintenance, supplies, food and beverage, covered supplier costs, operational costs, paid sick leave, and any other expense determined essential to maintaining the business.
Any money received as a restaurant revitalization grant is not included in the gross income of the person who receives the grant and all expenses are deductible.
Aviation Manufacturing Jobs Protection
The ARPA appropriates $3 billion to establish a payroll support program for the continuation of employee wages, salaries, and benefits for aviation manufacturing employers who have furloughed at least 10% of its workforce in 2020 compared to 2019 or experienced at least a 15% decline in revenues from 2019 to 2020. Employers may receive funds for no longer than 6 months.
Worldwide Interest Allocation
The ARPA repeals the Section 864(f) election for U.S. affiliated groups to allocate interest expense on a worldwide basis for taxable years beginning after December 31, 2020.