Articles

ARPA

April, 2021

EMPLOYMENT-RELATED BENEFITS

OF

THE AMERICAN RESCUE PLAN OF 2021

On March 11, 2021, President Biden signed the American Rescue Plan of 2021 (“ARPA”).

Although the law provides significant tax and employee benefit provisions, this newsletter will briefly summarize a few of the important benefits to workers.

1. Individual Rebates

ARPA provides individuals with a $1,400 recovery rebate, or $2,800 for married taxpayers filing jointly.  The recovery rebate credit does not apply to taxpayers with adjusted gross income over $75,000. 

• COBRA Assistance to Individuals

Although a terminated employee previously could enroll in his/her employer’s health insurance plan for continued coverage, the monthly out-of-pocket cost would be the same as the employer’s premium plus a 2% administrative charge which usually made that choice too expensive.

Under ARPA, an employee who is terminated by the employer, rather than an employee who resigns employment, is defined as an “assistance eligible individual.”  Such employee can enjoy a no-cost COBRA health insurance coverage beginning with the month of April, 2021 and ending 6 months later on September 30, 2021.  It should be noted that COBRA coverage usually extends for 18 months following a “qualifying event,” such as a termination.

ARPA defines “assistance eligible individual” to include both the employee and his or her eligible qualified beneficiaries, and also applies the COBRA premium assistance benefit to persons whose qualifying events precede the enactment of ARPA.

ARPA essentially reimburses the employer or the group health plan that furnishes the COBRA premium assistance by providing the employer or group health plan with a refundable tax credit that is claimed on the quarterly Form 941 payroll tax return.

• Unemployment Compensation Benefits

ARPA provides an income tax exemption that exempts the first $10,200 of unemployment compensation paid in 2020 from federal income tax.  The tax exemption applies to individuals and married couples with adjusted gross income that is less than $150,000.