The Employee Retention Credit (ERC) made available by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 has enabled qualifying organizations within the healthcare industry to access funds for costs not reimbursed through other pandemic assistance such as Paycheck Protection Program loans. The ERC, available for 2020 and most of 2021, is still available for organizations that meet the eligibility criteria. Organizations that have not yet evaluated ERC applicability, and even some of those that have but originally thought it was not applicable to them, may want to consider the program. Guidance issued by the IRS and other relevant agencies has provided additional clarity on how the ERC interplays with other funding, as well as a deeper understanding of relevant government orders and how to assess and calculate qualifying wages.
The ERC is a refundable payroll tax credit that is available to qualifying for-profit and tax-exempt organizations. For 2020, organizations may receive up to a $5,000 maximum credit per employee based upon qualifying wages paid between March 31, 2020 and December 31, 2020. For 2021, organizations may receive up to a $7,000 maximum credit per employee, per quarter based upon qualifying wages paid January 1, 2021 through September 30, 2021 (through December 31, 2021 if a recovery startup business).
There are two hurdles an organization must meet to qualify for the credit: It must be an eligible employer and must have qualifying wages. An organization qualifies as an eligible employer by either meeting the gross receipts decline qualification or by experiencing a full or partial suspension of operations due to a COVID-19-related government order limiting commerce, travel, or group meetings. While many healthcare organizations may not have experienced a gross receipts decline of a magnitude that qualifies them as an eligible employer, professionals at FORVIS have seen relevant COVID-19 government orders that have significantly impacted many across the industry, including physician practices, hospitals, and long-term care facilities.
Qualifying wages are based on employer size. In general, all wages and healthcare costs for the eligible period are included in the credit calculation as qualified wages if the employer is “small.” In contrast, only eligible-period wages and healthcare benefits paid to employees while not working will be qualifying wages if the employer is “large.” Determination of whether an employer is large or small depends on which year the credit applies. If the ERC calculation is for 2020, more than 100 full-time employees is considered large; if the credit is for 2021, more than 500 full-time employees is considered large.
The designation of being a small versus large employer is calculated based on the full-time employee count for the 2019 calendar year. The definition of a full-time employee for this purpose would include an employee who worked an average of at least 30 hours of service per week or 130 hours of service per month. The number of full-time employees determined under ERC guidelines can vary significantly from the number of W-2 forms filed by an organization, so careful consideration and calculation of the number of employees used for the ERC is important.
As organizations consider ERC eligibility, they should be aware of recent warnings issued by the IRS related to ERC claims. There is increased scrutiny of these credits as a result of ERC promoters assisting taxpayers with inaccurate or unsubstantiated claims, typically charging a contingency fee for their services. If a taxpayer believes it is eligible for the ERC, it is important to select a trusted advisor who will provide appropriate documentation of eligibility and an accurate credit calculation. The IRS can impose significant penalties related to tax-filing inaccuracies or fraud. Taxpayers also may consider revisiting ERC positions if they are concerned about ongoing calculation efforts or previously filed claims.
While qualification for the ERC is based upon the specific facts and circumstances of each employer, there may be ERC opportunities for many types of healthcare organizations. Our team has experience assisting healthcare organizations with related analyses, and we stand ready to discuss your organization’s specific fact patterns. It is important to plan ahead and evaluate eligibility now, as adequate time will be needed to evaluate and document eligibility, calculate the credit, and file the amended Forms 941 before the refund statute of limitations expires beginning April 15, 2024 for the 2020 credit and April 15, 2025 for the 2021 credit.
If you have any questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.