Payroll Briefs

Impacts of the New American Rescue Plan Act on Payroll

March 15, 2021

Nearly a year after the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted and just days before the second extension of pandemic unemployment relief was set to expire on Mar. 14, 2021, President Biden signed the American Rescue Plan Act of 2021 into law on Mar. 11, 2021. With a price tag of approximately $1.9 trillion, the act intends to provide a great deal of financial relief to Americans and their businesses.

DM Payroll Solutions has outlined two notable payroll-related provisions employers should know about, including the employee retention credit (ERC) and paid leave credits.

Employee Retention Credit Features

The Consolidated Appropriations Act of 2021 extended and amended the employee retention credit back in December to expire June 30, 2021. The American Rescue Plan Act has extended the credit’s availability once again for wages paid until Dec. 31, 2021. The credit percentage remains 70% of up to $10,000 in qualified wages per employee per quarter.

The credit is now also available to startups with annual gross receipts under $1 million that began operating after Feb. 15, 2020, for a maximum credit of $50,000 per quarter.

Additionally, employers who have suffered a decline of 90% or more in quarterly gross receipts (compared to the same quarter in 2019) will receive additional ERC flexibility. These employers may treat all paid wages during eligible quarters as qualified wages up to $10,000 per employee no matter how many employees they have.

Paid Leave Credits

The American Rescue Plan Act also extended the qualified sick leave and qualified family leave credit to be claimed through Sept. 30, 2021, for employers with fewer than 500 employees.

Originally, the Families First Coronavirus Response Act (FFCRA) set a 10-day limitation on paid leave. Under the new act, employers’ maximum amount of tax credits they can claim per employee will now reset Apr. 1, 2021. As a result, employees who exhausted their maximum leave through Mar. 31, 2021, are now able to access additional FFCRA leave beginning on Apr. 1, 2021, through Sept. 30, 2021.

It also expanded the reasons for which an employee may take paid sick or family leave to include:

  • Awaiting the results of a COVID-19 test
  • Obtaining a COVID-19 immunization and recovering from any adverse health impacts arising from the immunization

Limits on applicable wages for the credit will also go up to $12,000, from $10,000 after Mar. 31, 2021.

Making the Changes

DM Payroll Solutions has updated its software to accommodate the changes brought about by provisions of the American Rescue Plan Act. Earning codes are available to track wages for applicable ERC, and paid and family sick leave credits. Credit amounts will be auto calculated with the ability to override if necessary for your business’s unique situation.

If you have questions about the effects the updated ERC and paid leave credits will have on your payroll, contact DM Payroll Solutions today.