As we look back over the issues that have been caused by the pandemic, the various stimulus packages that have been released since March 2020 have had a strong impact on keeping employers operating. For many employers, including a wide range of healthcare providers, funding offered through the Paycheck Protection Program (PPP) helped them keep the doors open in uncertain times. In a similar vein, the Employee Retention Credit (ERC) was offered originally during the CARES Act, and has received further enhancement via additional legislation.

Are You Eligible for the Employee Retention Credit?

If you’re not familiar with the ERC, it’s not a surprise. Because many employers didn’t initially qualify for this credit, they didn’t continue to pursue it. At the time that it was started in the CARES Act, companies that had received PPP funding were not allowed to participate in the credit. However, when the Consolidated Appropriations Act of 2021 (CAA) was passed on December 27, 2020, this restriction was removed, which allows over one million more employers to qualify for the program. But what does it take to qualify?

There are two specific instances where healthcare businesses can qualify for the ERC on their taxes. In the first were healthcare companies that had to partially or fully suspend business operations because the government required it due to COVID-19, such as practices that were considered to be doing nonessential treatments. However, even if you didn’t need to suspend operations, being able to show a reduction in your gross receipts can qualify you for the ERC, which we’ll get into below. Let’s start by discussing the first qualifier, partial or full suspension of business operations.

Virtually every state government required healthcare facilities to stop or suspend elective surgeries and treatments temporarily. This is enough of an impact on business so that many healthcare businesses will qualify for the ERC credit. To provide you with an example, at the beginning of the pandemic, Massachusetts Governor Charlie Baker issued an executive order which prohibited elective surgeries in the state for a two-month period from March 18 to May 18, 2020, which caused a partial impact that would allow providers to review their ERC eligibility. Because this type of action happened in many other states as well, it’s vital that healthcare providers that may have had even a partial impact because of the COVID-19 pandemic review their ERC eligibility.

For reduction in gross receipts options, the qualification for the ERC will depend on whether you’re trying to qualify your business for 2020 or 2021 tax years. In the 2020 tax year, businesses are required to show a minimum of a 50% reduction in gross receipts in any quarter compared to the same quarter in the 2020 tax year. Because most healthcare providers did not meet this steep requirement, many are pursuing the tax credit for 2020 based on suspension of operations. However, in the 2021 tax year, you only need to be able to prove a 20% reduction in gross receipts compared to any individual quarter or a preceding quarter versus the same quarter in 2019.

Once you’ve had the opportunity to decide whether your company is qualified for the ERC credit, it’s time to calculate the credit. Let’s take a look at both the 2020 and 2021 calculations.

For 2020, the ERC lets you reclaim half of the healthcare costs and eligible wages of your employees, with a hard limit of a $10,000 claim or $5,000 credit for each employee. Companies that had a loss of 50% of their gross revenues for one quarter compared to the same 2019 quarter with 20 employees can claim $100,000 for the tax year.

Comparatively, the 2021 tax year only requires a 20% reduction in gross revenue in one quarter compared to 2019 while covering multiple quarters at a higher percentage, covering 70% of your employees’ eligible healthcare costs and wages up to $10,000 for each employee. That allows you to not only collect the $7,000 credit but also to collect a total of $28,000 for the entire year. This allows the same company to claim up to $560,000, making it easier to recoup the losses.

That being said, it’s important to start with a solid definition of eligible wages. It can be different for companies that are considered to be large employers under the credit. This is defined as over 100 full-time employees in 2019 for the 2020 ERC and 500 full-time employees in 2019 for the 2021 ERC. For these employers, the credit can only be claimed for wages that were paid to employees who were not providing services to the organization.

If you have any questions or if your company is considering filing for an ERC credit, please contact our PPP & ERC Consulting Services team 0r call us at 617-738-5200.

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