Is Your Healthcare Practice Eligible for the Employee Retention Credit?
The Employee Retention Credit (ERC) was introduced by the CARES Act in 2020. The ERC was expanded under the Consolidated Appropriations Act of 2021 (CAA) and further extended under the American Rescue Plan Act of 2021 (ARPA). The ERC, which is intended to encourage employers to keep employees on the payroll even if they are not working during the covered period due to the Covid-19 pandemic, is a refundable payroll tax credit.
Medical and dental practices or facilities that meet the Acts’ eligibility guidelines, which are briefly summarized below, are eligible for the ERC. The ERC can greatly benefit healthcare practices by helping them with their cash flow.
The CARES Act
Under the CARES Act, the ERC provided a refundable payroll tax credit of up to $5,000 per employee per year, based on $10,000 of qualified wages paid within the eligible period. The qualified wages include the employer’s qualified health plan expenses paid on behalf of employees, that are properly allocable to the wages associated with that time period.
To be eligible, employers, including medical and dental practices, must meet one of these two eligibility tests:
- The employer’s operations were fully or partially suspended due to a COVID 19-related governmental order, or
- The employer incurred a greater than 50% decline in gross receipts during a 2020 Calendar quarter as compared to same calendar quarter in 2019.
The ERC is available for qualified wages paid after March 12, 2020 and before January 1, 2021. Companies with more than 100 employees were not eligible to take the credit.
The Consolidated Appropriations Act of 2021 (CAA), enacted December 27, 2020, extended the ERC to Q1 and Q2 of 2021, and also provided that an employer may be eligible for both a PPP loan and the ERC as long as they meet the eligibility criteria and do not use the same wages for both programs.
In addition, the CAA:
- Increases the threshold for the number of full-time employees from 100 to 500;
- Reduces the gross receipts reduction requirement from 50% to 20%; and
- Expands the tax credit from 50% to 70% of qualified wages (i.e., up to $7,000 refundable tax credit per employee per quarter).
The American Rescue Plan Act of 2021 (ARPA), enacted on March 11, 2021, extended the ERC until December 31, 2021.
In addition, the ARPA made businesses that opened after February 15, 2020, experienced either a full or partial suspension of business because of a government order due to COVID-19 or a significant decline in gross receipts, and had annual gross receipts averaging less than $1M are eligible for the ERC.
An Example of How the ERC Works
This example illustrates the impact that the ERC can have on a healthcare practice or facility:
In Q1 2021, Mary Smith, DDS has 10 employees with $10,000 of qualified wages per employee (i.e., $100,000 of qualified wages for the quarter). If qualified, Dr. Smith could claim a $70,000 credit for the quarter.
Many healthcare practices were affected starting in the second quarter 2020. If your practice is eligible and has not already claimed this credit, you can claim retroactively by amending Form 941.
In addition, eligible practices can file Form 7200 for advance credits anticipated for a quarter at any time before the end of the month following the quarter in which the qualified wages were paid.
Is your practice eligible?
We encourage you to contact us if you believe your healthcare practice or facility is eligible for the ERC. The rules and calculations can be complicated, and we are here to assist.
We are constantly updating our COVID-19 Resource Center with information as changes are being made.