On March 4, Senate Democrats released an updated version of the $1.9 trillion stimulus plan—the American Rescue Plan Act (ARPA) (H.R.1319). The bill cleared its first procedural hurdle Thursday in a 51-50 vote, with Vice President Kamala Harris casting the tie-breaking vote to move forward with debate on the ARPA. On March 5, the chamber began “vote-a-rama.” This process will allow senators to consider an unlimited number of amendments, until their list, or their will to continue, is exhausted. Final passage of the bill is expected this weekend.
ARPA was drafted and marked up by House committees in February and approved by that chamber along party lines (219-210) on Feb. 27. The measure was then sent to the Senate, where the upper chamber made several changes in order to ensure compliance with the Byrd Rule, which governs budget reconciliation.
Notable provisions in the bill include:
· $1,400 in additional direct payments to individuals;
· Extended pandemic-related unemployment aid through September;
· Funding for COVID-19 vaccines, testing and public health programs;
· Funding to reopen K-12 schools and support child care centers;
· $350 billion in state, local, tribal and territorial aid;
· Housing and homelessness aid;
· Small-business aid, including a dedicated grant program for restaurants; and
· Investments in broadband and other infrastructure.
Below is a summary of changes made by the Senate to tax provisions in the bill:
Minimum Wage: A provision increasing the minimum wage to $15 was removed from the bill because it violated the Byrd Rule. Senate Budget Committee Chair Bernie Sanders (I-VT), who has long championed the wage increase, has indicated that he will introduce an amendment to overcome a Byrd Rule challenge. His amendment would end certain tax deductions for large corporations that offer wages below $15 an hour and provide incentives for small businesses to provide the $15 minimum wage. Sanders might force a vote on his amendment during the Senate’s vote-a-rama, though it is not expected to pass.
Senate Finance Committee Chair Ron Wyden (D-OR) also released preliminary details on his “Plan B,” which would impose a 5% charge on total payroll of large corporations if workers earn below a “certain level.” Wyden’s plan also includes an incentive for small businesses in the form of an income tax credit equal to 25% of wages, up to $10,000 per employee, if businesses increase wages.
Though both workarounds were ultimately rejected by Senate Democratic leadership for inclusion in the bill, Democrats are expected to press forward on efforts to include the minimum wage increase in forthcoming legislative vehicles.
During vote-a-rama, Sanders offered an amendment to include the $15 minimum wage in the bill. Ultimately, Sens. Kyrsten Sinema (D-AZ), Chris Coons (D-DE), Tom Carper (D-DE), Maggie Hassan (D-NH), Jeanne Shaheen (D-NH), Angus King (I-ME), Jon Tester (D-MT), and Joe Manchin (D-WV), joined all 50 Republicans in voting against the measure.
Economic Impact Payments. Under the House-passed version of the bill, $1,400 EIPs completely phased out at $100,000 for individuals and $200,000 for married couples. In an effort to appeal to moderates, the Senate bill makes further changes to the income thresholds, phasing payments out completely at $80,000 for individuals and $160,000 for joint filers.
Reductions to the full payment are based on a formula. For individuals, the reduction amount is equal to the ratio of $5,000 to the taxpayer’s adjusted gross income minus $75,000, multiplied by $1,400.
Example: A taxpayer’s AGI is $77,000. The calculation for the amount of the reduction would be:
$77,000 - $75,000/$5,000 * $1,400 = $560
$1,400 - $560 = $840
The taxpayer’s credit would be reduced by $560, resulting in an $840 payment.
Employee Retention Tax Credit: Under the House-passed version of the bill, the ERTC was simply extended to apply to the third and fourth quarters of 2021, and under current law, the ERTC is creditable against OASDI, allowing businesses to withhold Social Security taxes rather than making payments to the IRS. However, since the Byrd Rule, which governs budget reconciliation legislation in the Senate, prohibits the inclusion of any provision that impacts Social Security, the House-passed version restructured the credit such that it may only be taken against the employer’s share of the 1.45% hospital insurance tax. The amount of the credit remained the same as what was enacted by the Consolidated Appropriations Act (H.R.133) on Dec. 27, 2020; effective Jan. 1 through June 30, employers are allowed a 70% credit for qualified wages up to $10,000 per quarter per employee. Businesses that experience a 20% year-over-year decline in gross receipts are eligible for the credit.
The Senate version makes two important changes to the House-passed version of the bill: It (1) includes a higher credit amount for startup businesses; and (2) expands the definition of “qualified wages” for severely financially distressed employers.
Qualified recovery startup businesses are defined as those that became operational after Feb. 15, 2020, and have less than $1 million in revenue. Businesses that meet eligibility requirements qualify for a credit of up to $50,000 per calendar quarter, per employee. Given that most startup businesses have less than 500 employees, the increase in the qualified wages will result in a significant benefit to the employer, since all wages paid, regardless of whether services are being performed or not, may be taken into account.
Severely financially distressed employers are defined as those that experience a 90% decline in revenue compared to the same calendar quarter in 2019 (e.g., a comparison of Q3 2021 to Q3 2019). If employers meet eligibility requirements, all wages paid to employees, regardless of whether services were being performed or not, will qualify for the credit. Few employers are likely to meet the 90% decline in revenue test, but for those that meet the definition, this could result in a modest benefit.
COBRA Subsidies: The Senate version subsidizes 100% of premiums for individuals who are eligible for COBRA coverage, as opposed to the 85% subsidy included in the House-passed version. This means individuals do not have to pay any premiums and the employer or health plan may claim a refundable tax credit against Medicare payroll tax liability for the cost of the premiums. The provision is available for individuals who lost employment-based health coverage as a result of a reduction in hours, furlough or layoff.
Student Loans: A new provision ensures that no individual has to pay taxes on COVID-19 student loan payments and interest relief between Dec. 31, 2020, and Jan. 1, 2026.
Executive Compensation. A new revenue raiser increases to 10 the number of executives subject to section 162(m), which limits deductibility of compensation to $1 million. Under current law, the chief executive officer and the chief financial officer of a company, plus the three highest-paid officials are subject to Sec. 162(m). The Senate bill increases the total number of highly compensated employees subject to section 162(m) by an additional five.
Unemployment Insurance: Late on March 5, a majority of the Senate Democratic caucus reached an agreement on changing the Federal Pandemic Unemployment Compensation (FPUC) payments from $400 a week through Aug. 29 to $300 a week through Sept. 6. The new agreement would also exempt the first $10,200 in payments from tax for households with incomes under $150,000 a year. The Senate is currently in the middle of vote-a-rama, the process by which senators offer amendments to modify the bill. Sen. Tom Carper (D-DE) is expected to offer Senate Amendment 1150 that includes this modification to the unemployment benefits in the bill. As of this writing, the amendment is expected to pass with Sen. Joe Manchin’s (D-WV) support. Democrats spent much of the day trying to come to an agreement on modifications to unemployment insurance provisions in the bill.
The bill summary below does not reflect these changes to unemployment because the amendment has not officially been adopted. Currently available bill text does not include the changes described above.
Click here for full section-by-section summaries of the provisions in the March 4 version of the Senate bill.
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