Employee Retention Credits Offer a Payroll Tax Savings Opportunity for Healthcare Practices
Medical and Dental Practices and Facilities have a lot to consider as they prepare to file their 2021 taxes. One of them is the Employee Retention Tax Credit (ERC), which is a payroll tax credit rather than an income tax credit. Eligible employers can claim the credit by computing the ERC amount for a pay period and decreasing the required payroll deposit by that amount. The ERC is reported on Form 941.
Here is some background: The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) created the ERC which allowed eligible employers get a refundable payroll tax credit equal to a percentage of eligible wages. The CARES Act also created the Paycheck Protection Program (PPP), which provided forgivable loans businesses could use to pay payroll, rent, utilities, and mortgage interest expenses. However, the CARES Act did not allow employers to obtain a PPP loan and claim the ERC, leaving it up to businesses to choose between the two. Later legislation, the Consolidated Appropriations Act (CAA), changed that by allowing eligible employers to claim the ERC even if they received a PPP loan.
Until passage of The Infrastructure Investment and Jobs Act (the Act), the ERC was allowed through December 31, 2021. The Act changed the end date for claiming the ERC to September 30, 2021 for all eligible employers other than Recovery Startup Businesses, which are defined as businesses that (1) began carrying on any trade or business after February 15, 2020 and (2) had under $1 million in average annual gross receipts. Recovery Startup Businesses may claim the ERC for all four quarters of 2021.
This means that for most businesses, for 2021 the ERC is calculated as 70% of the first $10,000 (or $7,000) in eligible wages per employee for each of the first three quarters of 2021.
There are other requirements as well, including:
- Companies cannot claim the ERC on PPP wages used for PPP loan forgiveness.
- Companies have three years to claim the credit retroactively by filing an amended Form 941.
- Eligible wages are calculated differently for large employers and for small employers and for 2020 and 2021. However, all calculations use the average number of full-time employees employed during 2019.
Every practice’s situation needs to be evaluated individually so that the business can be sure it is maximizing all available credits and deductions. Contact our healthcare tax professionals at (973) 298-8500 to discuss the best options available to your business.