Employee Retention Credit for Healthcare Providers – Are You Eligible?

Since March 2020, the government has offered several stimulus packages to provide funding to employers impacted by COVID-19. Many healthcare providers took advantage of the Paycheck Protection Program (PPP) loan, provider relief funding, and Medicare advanced payments. The Employee Retention Credit (ERC) is another program originally offered through the CARES Act and subsequently enhanced through further legislation.

If you have not heard of the ERC, you’re not alone; many employers aren’t aware of the credit because initially they didn’t qualify for it. When this credit was originally enacted through the CARES Act, PPP recipients were prohibited from participating. However, this restriction was lifted on December 27, 2020, through the Consolidated Appropriations Act of 2021, potentially opening the ERC to more than a million more employers.

As of the date of this article, the ERC is based on wages paid to employees of the company from March 13, 2020, through December 31, 2021. Qualifying employers can receive up to $5,000 per employee for 2020 and $28,000 per employee for 2021. The U.S. Senate recently passed the infrastructure bill, which is currently under review in the U.S. House of Representatives. This bill includes a provision to move the end date of eligible wages for the ERC to September 30, 2021, instead of December 31, 2021.

Employers can qualify by either:

1. Experiencing a full or partial suspension of business operations due to orders from an appropriate governmental authority due to COVID-19, or

2. Showing a reduction in gross receipts, as described further below.

Almost every state government enacted a shutdown of elective surgeries, which could result in certain healthcare providers qualifying for the ERC, even if they do not meet the gross receipts reduction. For example, Governor Charlie Baker signed an executive order prohibiting all elective surgeries in Massachusetts from March 18, 2020, through May 18, 2020. Other qualifying examples might include reductions in patient visits due to capacity restrictions or closing an office to meet sanitation requirements. Healthcare providers that believe they may have experienced a partial impact due to COVID-19 should thoroughly review their eligibility for the ERC.

The reduction in gross receipts qualification is dependent on whether an employer is looking to qualify for the 2020 or 2021 ERC. To qualify for the 2020 ERC, a business would need to show at least a 50% reduction in gross receipts in any quarter of 2020 compared to that same quarter in 2019. Many healthcare providers did not meet this threshold, and are more commonly pursuing the credit based on the suspension of operations. For 2021, however, the required gross receipts reduction to qualify is only 20% when comparing any single quarter or the immediately preceding quarter to the same quarter in 2019.

The next step after confirming qualification is calculating the credit, which is different for 2020 vs. 2021. The 2020 ERC is 50% of eligible wages and healthcare costs up to $10,000 per employee, thus up to $5,000 per employee. The 2021 ERC is 70% of eligible wages and healthcare costs up to $10,000 per employee per quarter, thus up to $7,000 per employee per quarter or $28,000 for the entire year. For example, a practice with 50 employees could qualify for up to $1,650,000 of ERC between 2020 and 2021.

It is important to note that the definition of “eligible wages” is different for those who are considered “large employers” under the ERC; these employers are able to receive a credit only for wages paid to employees not providing services. The definition of a large employer for the 2020 ERC is any employer that averaged more than 100 full-time employees during 2019. For the 2021 ERC, large employers are those that averaged more than 500 full-time employees during 2019.

To claim the credit, eligible businesses can withhold required deposits for certain payroll taxes. Credits in excess of the businesses’ quarterly liability could either request a refund or a credit to be carried forward on their original, timely filed quarterly Form 941. Those businesses that have determined their eligibility after the original filing of Form 941, are required to file an amended payroll tax return, which includes a request for a refund for the credit amount.

The calculation of the employee retention credit can be complex, especially when considering the period of eligibility, the overlap with other federal programs, and the determination of which wages are deemed eligible for the ERC.

Withum has assisted healthcare providers nationwide in obtaining ERC. If you think your business might be eligible, reach out to your advisor or contact us at www.withum.com/erc-eligibility .