American Rescue Plan Act: What Nonprofits Need To Know

CATEGORY: Special Bulletins
CLIENT TYPE: Nonprofit
PUBLICATION: LCW Special Bulletin
DATE: Mar 18, 2021

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“American Rescue Plan” or “Plan”), a $1.9 trillion dollar legislative package intended to address the economic damage caused by COVID-19.  This bulletin highlights some of the key American Rescue Plan provisions applicable to nonprofits.  For nonprofit school and childcare providers, see our related Bulletin here.

Extension Of Payroll Tax Credits For Voluntarily Providing FFCRA-Type Leave And Benefits

The American Rescue Plan does not re-enact the Families First Coronavirus Response Act (FFCRA),[1] which expired on December 31, 2020,[2] nor does it reinstate the paid leave obligations, including Emergency Paid Sick Leave (EPSL”[3] and Expanded Family and Medical Leave (EFML),[4] as some speculated the bill would.[5]  Rather, the American Rescue Plan extends a system of payroll tax credits, initially established under the Consolidated Appropriations Act of 2021 (CAA),[6] for employers that voluntarily decide to continue providing employees with EPSL or EFML.  There is currently no legal obligation to continue providing EPSL or EFML as the requirement to provide these leaves expired on December 31, 2020.

Under the Plan’s payroll tax credit system, eligible employers, including nonprofit organizations, that voluntarily provide or provided their employees EPSL and EFML between January 1 and March 31, 2021,[7] may take advantage of payroll tax credits to offset the costs associated with the provision of such benefits. The American Rescue Plan extends these payroll tax credits to employers that provide these paid leave benefits through September 30, 2021.[8]

Under the American Rescue Plan, employers may receive payroll tax credits for providing employees EFML for the reasons previously only available for EPSL.  Accordingly, if offered by their employer, employees may now take both EPSL and EFML where the employee (1) is unable to work because the employee is quarantined[9]; (2) is experiencing COVID-19 symptoms and seeking a medical diagnosis; (3) is unable to work because of a bona fide need to care for an individual subject to quarantine[10]; (4) or is unable to work due to a need to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.  Further, the Plan expands the reasons why an employee may take EPSL or EFML.  In addition to the prior reasons, employees may now take EPSL and EFML, to obtain an immunization related to COVID-19, to recover from any injury, disability, illness, or condition related to a COVID-19 vaccine, or to await the results of a COVID-19 test or a COVID-19 diagnosis after a COVID-19 exposure, including where their employer has requested the test or diagnosis.

The current 10-day limitation on the maximum number of days for which an employer can claim the EPSL credit runs from the start of the credits in 2020 through March 31, 2021.  The Plan resets the 10-day limit to begin April 1, 2021.  Accordingly, an employer may, but is not required to, provide an additional 10 days of paid sick leave benefits beginning April 1, 2021, and, if so, would be eligible for the payroll tax credit.  The Plan further increases eligible wages for which an employer may claim the EFML payroll tax credit to up to $12,000 per employee instead of the previous cap of $10,000.

The Plan also now provides that payroll tax credits will not be provided if an employer discriminates in the administration of such leave in favor of highly compensated employees, full-time employees, or employees on the basis of tenure with the employer.

If nonprofits elect to provide EPSL and EFML to employees under the Plan, they should understand that employees may be entitled to up to 14 weeks of leave now due to the expansion of the reasons for leave formerly available only for EPSL to now also apply to EFML.  Also, employers must now pay employees for the first two weeks of EFML taken if an employer decides to take advantage of these payroll tax credits.

We anticipate that the Internal Revenue Service (IRS) will issue guidance to employers on extension and expansion of this payroll tax credit.

For more information about these payroll tax credits, see the LCW special bulletin, New Covid-19 Relief Legislation and its Impact on Private Schools and other Nonprofit Organizations, issued on December 28, 2020.

Increases Paycheck Protection Program (PPP) Funding

The Plan includes $7.25 billion in additional funding for PPP loans and expands the eligibility of the loans to more categories of not-for-profit entities.  However, the Plan does not extend the PPP’s current application period, which is scheduled to close March 31, 2021.

Extension Of The Employee Retention Credit

The bill extends the Employee Retention Credit (ERC) through December 31, 2021.  Prior to the enactment of the bill, the ERC was limited to the first half of the 2021 calendar year.

The ERC is an employer tax benefit created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act,[11] and amended by the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) .  Nonprofits are eligible to claim an ERC if, between January 1 and December 31, 2021, they experience either: (1) A full or partial suspension of the operation of their business because of governmental orders limiting commerce, travel or group meetings due to COVID-19; or (2) A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than eighty percent (80%) of the gross receipts in the same calendar quarter in 2019.  To be eligible based on a decline in gross receipts in 2020, the gross receipts were required to be less than fifty percent (50%).

The maximum allowable ERC is equal to seventy percent (70%) of the qualified wages provided to employees by the nonprofit.  Qualified wages are limited to $10,000 per employee, per quarter in 2021.  Accordingly, the maximum ERC is $7,000 per quarter, per employee (or $28,000 per employee for the 2021 calendar year).  In addition, the ERC may not exceed applicable employment taxes on the wages paid with respect to the employment of all employees of the eligible employer for the quarter at issue.  If the calculated credit exceeds the taxes paid, the excess will be treated as an overpayment and refunded to the employer.

The IRS issued information to employers about how to take advantage of the ERC, which is accessible here: https://www.irs.gov/newsroom/new-law-extends-covid-tax-credit-for-employers-who-keep-workers-on-payroll.

Nonprofits are encouraged to consult with their payroll providers and tax-professionals for further guidance on how to take advantage of the ERC.

Funds COVID-19 Emergency Grants Available Through The SBA’s Economic Injury Disaster Loan (EIDL) Program

The Plan allocates $15 billion to the Small Business Administration (SBA), of which, $10 billion is for covered entities that have not received the full amount to which they are entitled under the Targeted Economic Injury Loan (EIDL) Advance Grants Program.  The Targeted EIDL Advance Grants Program provides grants of up to $10,000 to small businesses and nonprofit organizations experiencing a temporary loss of revenue due to COVID-19.  Entities entitled to these targeted grants must be located in low-income communities, employ not more than 300 employees, and have suffered an economic loss of greater than thirty percent (30%), generally determined by the amount that the entity’s gross receipts declined during an eight (8) week period between March 2, 2020, and December 31, 2021, compared to the eight (8) week period immediately preceding March 2, 2020, or during 2019.

The remaining $5 billion allocated under the Plan is for Emergency EIDL Grants of $5,000 for small businesses and nonprofit organizations that have suffered an economic loss of greater than fifty percent (50%) and employ not more than 10 employees.  This is in addition to payments made to entities eligible for Targeted EIDL Advance Grants.

Extension Of CARES Act Unemployment Provisions

The American Rescue Plan extends two important unemployment assistance programs[12]: (1) The Federal Pandemic Unemployment Compensation (FPUC) program[13]; and (2) The Pandemic Emergency Unemployment Compensation (PEUC) program[14], that were initially established under the CARES Act, but are set to expire on March 14, 2021.[15]

Under the FPUC program, eligible individuals may qualify to receive federal unemployment compensation to supplement the unemployment compensation provided to the individual by the state. Under the PEUC program, individuals who exhausted state unemployment compensation benefits because of the length of their unemployment would receive extended federal unemployment compensation.  Collectively, these programs provided much-needed relief to employees furloughed or laid off last year.

Under the CAA, Congress reauthorized both programs before their initial expiration on December 31, 2020, however, the reauthorization provided only a temporary extension which was set to expire on March 14, 2021.[16] The extension passed through the CAA also reduced the benefit payable under the FPUC program from $600 per week to $300 per week. Rather than let these programs lapse, the American Rescue Plan Act extends both programs at their current benefit funding levels through September 6, 2021.

Employers need not undertake any specific action with respect to the extensions of the FPUC and PEUC programs.  However, to the extent that an employer furloughed or laid off any employees, it may elect to inform those employees or former employees of the extension of the benefits under these programs.

LCW attorneys are familiar with the American Rescue Plan Act, and are available to help employers assess eligibility for funding and benefits under the Act and to otherwise provide advice and counsel related to the Act.

[1] PL 116-127.

[2] See FFCRA, Secs. 3102, 5109; 29 U.S.C. § 2601.

[3] FFCRA, Sec. 5101, et seq.

[4] FFCRA, Sec. 3101, et seq.

[5] See The White House, “President Biden Announces American Rescue Plan” [“President Biden is calling on Congress to … put the [FFCRA paid leave] requirement back in place.”] https://www.whitehouse.gov/briefing-room/legislation/2021/01/20/president-biden-announces-american-rescue-plan/ (Uploaded on January 20, 2021).

[6] PL 116-260.

[7] The CAA only extended the payroll tax credits through March 31, 2021. (See CAA Section 286(a).)

[8] American Rescue Plan, Sec. 3131(g) (making the tax credits available for wages paid between April 1 and September 30, 2021).

[9] Quarantine must be pursuant to a Federal, State, or local government order or advice of a health care provider.

[10] Quarantine must be pursuant to a Federal, State, or local government order or advice of a health care provider.

[11] PL 116-136.

[12] American Rescue Plan Act, Secs. 9013 (extending the Federal Pandemic Unemployment Compensation (FPUC)) and 9016 (extending the Pandemic Emergency Unemployment Compensation (PEUC))

[13] CARES Act, Sec. 2104(e)(2).

[14] Social Security Act, Sec. 903(i)(1)(D).

[15] The CAA reauthorized the Federal Pandemic Unemployment Compensation (FPUC) and Pandemic Emergency Unemployment Compensation (PEUC) programs, described in this section, extending such programs, which were set to expire on December 31, 2020, through March 14, 2021. (See CAA, Div. N., Tit. II, Subt. A., Secs. 203 and 206.)

[16] See CAA, Div. N., Tit. II, Subt. A., Sec. 203, amending CARES Act Section 2104(e) to reduce the amount of the FPUC benefit from $600 to $300 per week.

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