Healthcare was undoubtedly the industry most affected by the COVID-19 pandemic. Hospitals, health systems, physician practices and other medical groups faced numerous challenges, both financially and operationally. Patient volume fell by an average of 60 percent, emergency department (ED) visits declined 42 percent and outpatient services were down 7.2 percent.
In addition to markedly increasing their use of telehealth, healthcare providers across the United States were required to comply with various state-level COVID-19 executive orders for medical and surgical procedures. They had to allow for additional time to sanitize facilities between patients, reduce the number of patients in waiting rooms and other clinical areas, screen patients and staff members for COVID-19 exposure, adhere to social distancing guidelines when possible and prioritize scheduling of at-risk patients.
By January 2021, only 25 percent of physician practices experienced their patient volume return to a pre-COVID level. At the height of the pandemic, roughly half (48 percent) of physician practices had to furlough staff, and 22 percent were forced to permanently lay off some employees. Many medical groups able to keep a majority of their staff members employed experienced questionable financial sustainability.
Loan Forgiveness and Credit For Qualified Wages Paid
Late in December of 2020, the U.S. government enacted the Consolidated Appropriations Act, 2021 (CAA), which is composed of 32 Divisions. Notable business and individual taxpayer-related provisions are located in Division EE, also known as the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
The Taxpayer Certainty and Disaster Tax Relief Act included changes to the employee retention tax credits (ERCs) previously offered through the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The overall goal of the credit is to encourage eligible employers to keep their employees on the payroll, even when they’re not working during the covered period due to the COVID-19 outbreak. Medical groups eligible for the employee retention credit have the potential for a payroll tax credit of $33,000 per employee.
Most importantly, the CAA extended the employee retention credit for an additional six months. Initially, it was established as a refundable payroll tax credit for “qualified wages” paid to retained full-time employees between March 13 and Dec. 31, 2020. It was offered as a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer paid to employees after March 12, 2020 and before January 1, 2021. For each employee, wages up to $10,000 were allowed to be counted to determine the amount of the credit. Originally, the tax credits could only be used for groups who did not apply for or receive a PPP loan forgiveness. However, the CAA amended this rule such that recipients of Paycheck Protection Program loans could also qualify for employee retention credits.
Retention Credit Changes from the Consolidated Appropriations Act
The extension made available through the CAA means wages paid between January 1-June 30, 2021 are eligible as part of the credit. Employers who meet the guidelines of the updated legislation have the opportunity to claim a refundable tax credit against the employer share of Social Security tax equal to 70 percent of the qualified wages paid to employees, including some healthcare expenses, during that time period. The maximum credit available to employers is $7,000 per employee per quarter or $14,000 for eligible wages paid in the first half of 2021.
Other changes to the credit made through the CAA for the first two quarters of 2021 consist of modifications to the gross receipts test, revisions to the definition of qualified wages, the expansion of the category of employers eligible to claim the credit and new restrictions on the ability of eligible employers to request an advance payment of the credit. Some of these changes apply to both 2020 and 2021, but many of them are only for 2021.
Employee Retention Credit Additions from the American Rescue Plan Act
On March 11, 2021, even more changes were made to the employee retention credit, this time through the American Rescue Plan Act of 2021 (ARPA). The ARPA extends the credit to apply to wages paid during the third and fourth quarters of this year, from July 1-December 31, 2021. Eligible employers can claim $7,000 for each employee in every quarter, with a maximum credit of $28,000 per employee. In the final two quarters of 2021, however, the employee retention credit is a credit against the Medicare tax instead of the Social Security tax.
Determinations for Eligibility
According to the Internal Revenue Service (IRS), employers are eligible for the employee retention credit under the CAA if they operate a trade or business during January 1-June 30, 2021 and experience at least one of the following circumstances:
- A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19.
- A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80 percent of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50 percent).
The Internal Revenue Service also notes that for the first and second calendar quarters in 2021, employers may elect in a manner provided in future IRS guidance to measure the decline in their gross receipts using the immediately preceding calendar quarter (i.e., the fourth calendar quarter of 2020 and first calendar quarter of 2021, respectively) compared to the same calendar quarter in 2019.
Due to the enactment of the ARPA, most employers can qualify for the employee retention credit. This includes hospitals, colleges and universities and 501(c) organizations. Physician practices qualify for the employee retention credit if they underwent either a full or partial suspension of operations during any calendar quarter in 2020 or 2021 due to a government order or a significant decline in gross receipts during any calendar quarter compared to the same quarter in 2019. For medical groups, health systems, hospitals, physician practices and other healthcare providers that qualify for the credit, there are specialty tax firms available to assist in claiming the employee retention credit.
According to the IRS, eligible employers will report their total qualified wages for purposes of the employee retention credit for each calendar quarter on their federal employment tax returns, usually IRS Form 941, Employer’s Quarterly Federal Tax Return. An employer that is treated as a single employer under the aggregation rules may not receive the employee retention credit if any member of the employer’s aggregated group receives a PPP loan. Also, an eligible employer may not claim the Employee Retention Credit and the WOTC for the same employee for the same period of time.
Providertech strives to assist healthcare providers in improving patient outcomes, engagement and satisfaction. Our solutions enable you to deliver quality care more efficiently using the resources you already have. Through our partnership with Stenson Tamaddon, we’re able to provide complete, rapid and uncompromising advice around employee retention credits and assist in getting funding for medical groups in financial need.
For additional information on some of the federal financial assistance programs enacted to aid medical groups and other U.S. businesses in remaining financially viable during the COVID-19 pandemic, check out one of our recent blogs.