After a dismal financial year in 2020 as a result of the COVID-19 pandemic, physician practice revenue is once again increasing. Hospital groups saw improvements in physician productivity and revenue in the second quarter of 2021 compared to the second quarter of 2020.
Even with these positive numbers, many healthcare providers continue to look for ways to maintain and improve their operations, including additional service lines, increased reimbursement and tax savings. One way these providers, especially physician practices, can reduce their taxes is by taking advantage of the Employee Retention Credit (ERC).
As we mentioned in a previous blog, the Employee Retention Tax Credit was introduced through the Coronavirus Aid, Relief and Economic Security Act (CARES Act) 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. The 2020 credit was for 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.
In March 2021, the Employee Retention Credit was extended through the enactment of the American Rescue Plan Act (ARPA) to include all of 2021. This extension offers eligible employers 70 percent of qualified wages (including qualified health plan expenses) paid to each employee. It also offers $10,000 in maximum wages for each quarter in 2021, with a maximum credit of $28,000 per employee.
If the proposed bipartisan infrastructure bill that passed the United States Senate and is waiting in the U.S. House of Representatives is passed, the Employee Retention Credit would be terminated on September 30, the end of the third quarter in 2021. This would effectively reduce the maximum credit available to employers from $28,000 to $21,000 and save the federal government more than $8 billion.
The Paycheck Protection Program and Qualified Wages Paid
In the expanded legislation, businesses can opt for the Employee Retention Credit if they participated in the Paycheck Protection Program (PPP), but employers are prohibited from using the same wages to claim employee retention tax credits as they use on their application for PPP loan forgiveness. Eligible businesses can use gross receipts for the current quarter compared to the corresponding quarter in 2019. If gross receipts increase, eligibility ends in the first quarter that gross receipts are greater than 80 percent compared to the same quarter in 2019.
There are two expansions to eligible businesses. One is Recovery Startup Businesses, which are companies that:
- Began business after February 15, 2020
- Have average annual revenue of less than $1 million
- Do not otherwise qualify for the Employee Retention Credit for a partial suspension or significant decline of receipts
Such businesses can claim up to $50,000 in credits in each Q3 and Q4 2021 for a potential $100,000 credit for the year. The other is Severely Distressed Businesses, in which an employer whose gross receipts are less than 10 percent of receipts compared to the same quarter in 2019 may treat all wages paid to employees as qualified wages, even if it was a “large employer” for Employee Retention Credit purposes in 2020 or the first two quarters of 2021.
A healthcare provider organization must, like other businesses, meet at least one of two criteria to participate in the Employee Retention Credit program in 2021. The first is if they fully or partially suspend operation due to government orders limiting commerce, travel or group meetings as a result of COVID-19. The second occurs if they experience at least a 20 percent decline in gross receipts during the calendar quarter compared to the same quarter in 2019 (or 2020 if their company did not exist at the start of such quarter in 2019).
How to Claim the Employee Retention Credit
Approximately one month ago, on August 4, the Internal Revenue Service (IRS) released additional guidance about the Employee Retention Credit for the third and fourth quarters of 2021. The agency issued Notice 2021- 49, which addresses changes made by ARPA to the ERC. In addition to providing information on expanded eligibility for the credit for taxpayers who took PPP loans and what constitutes “gross receipts,” it explains that wage deductions have to be reduced in the same year for which qualified Employee Retention Credit wages are paid and answered whether or not full-time equivalents (FTEs) should be counted when figuring employer size.
Healthcare provider organizations who meet Employee Retention Credit eligibility requirements can claim the credit by reducing their quarterly 941 deposit, requesting a refund through Form 941 or submitting Form 7200 to request an advance payment. Businesses that didn’t previously claim the Employee Retention Credit should amend their previous 941 forms to claim it. Employers have three years from the date the original return was filed, or two years from the date the taxes were paid, to file an IRS Form 941-X.
The same wages used to calculate the Employee Retention Credit can’t be used to calculate other credits. These credits include the Work Opportunity Tax Credit, Employer Paid Family and Medical Leave Credit (IRC 45S) or other disaster retention credits.
Providertech’s partnership with Stenson Tamaddon enables us to provide complete, rapid and uncompromising advice around employee retention credits and assist in getting funding for medical groups in financial need. For more 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.