The Employee Retention Credit (also known as “ERC”) is a cash return through payroll tax that is made accessible to medical, dental, and hospital-affiliated practices, including those controlled through private equity, as long as the practices satisfy the following criteria:
- Were impacted by directives from the government that imposed partial shutdowns on office activities, prohibited access to hospitals, or restricted the ability to carry out elective treatments; or
- Experienced large falls in total revenue brought in by receipts.
Even while many businesses are at least somewhat aware with the ERC, there is still a lot of uncertainty around the application and certification processes. Did you know that practices in the medical, dental, and hospital-related fields that are held by private equity might be eligible for the ERC? You may still be eligible for the ERC program even if you have received PPP loans in the past.
How to Maintain Your Employees and Receive the Employee Retention Credit?
The Test Required by the Government
Eligible Employers for the purposes of the ERC may include medical practices, dental practices, or hospital-affiliated organizations that have experienced a full or partial suspension of operations as a result of orders from an appropriate governmental authority to limit commerce, travel, or group meetings due to COVID-19. These orders were issued in response to COVID-19. As long as the government rules are being followed, the employer is required to continue paying eligible wages during this time period. This was a typical occurrence in 2020 and the beginning of 2021.
The following are some examples of organizations involved with medical and dental care as well as hospitals that have qualified:
- In the year 2020, a medical practice’s waiting room was subject to capacity limits due to its size.
- A medical clinic whose physicians were prohibited from carrying out elective treatments as a result of instructions issued by COVID.
- A situation in which some medical operations could not be performed immediately due to delays caused by access limitations imposed by hospitals.
- A physical treatment center that was housed in a gym and was therefore required to adhere to stringent standards about spacing, which reduced the number of patients that could be treated in a single day.
- A firm that manufactures medical devices and whose personnel are prohibited from visiting hospitals because of COVID orders. These technicians worked for a company that installed and repaired robotic surgical equipment.
- Dental or medical practices that were forced to close as a result of COVID regulations but were later allowed to reopen with limitations placed on the number of patients they could treat at once.
The Test of Gross Receipts
In the first, second, and third calendar quarters of 2021, the organization will be considered an Eligible Employer if the gross receipts of the business are lower by more than 20 percent compared to the gross receipts of the organization in the same calendar quarter of 2019. This requirement applies to all three quarters. Due to the need that a higher than 50 percent drop be shown, the gross receipts decline standards that must be met in 2020 will be much more difficult to accomplish.
Some Illustrations of Gross Receipts:
- Total Amount of Revenues
- Comprises all money earned through investing
- Dividends
- Interest
- Rents
- Royalties, pensions, and other payments
- The applicable tax accounting technique for the recognition of income
In addition, your practice can be eligible for four different ERCs that are determined separately:
1. 2020 ERC (This is the most usually claimed credit by medical establishments) (This is the most commonly claimed credit by medical facilities)
- Maximum credit = $5,000 per employee
- Quarters 2-4 were included on forms 941-X for reporting purposes.
2. 2021 Quarter 1 ERC
- The maximum amount of credit per employee is $7,000.
- Submitted on Form 941-X for the First Quarter of the Year
3. 2021 Quarter 2 ERC
- Maximum credit = $7,000 per employee
- Quarter 2 information was reported on Form 941-X.
4. 2021 Quarter 3 ERC
- The maximum amount of credit per employee is $7,000.
- Quarter 3 activity was reported on Form 941-X.
Benefits of a Higher Standard
For the purposes of the 2020 ERC, medical or dental practices that have 100 or fewer full-time employees (as measured, on average, in 2019) are entitled to the maximum benefits that are available under the ERC calculations. This is the case only if the practices continue to qualify as Eligible Employers in accordance with either the Government Mandate Test or the Gross Receipts Test. For the purposes of the 2021 ERCs, this restriction was relaxed by raising the full-time employee barrier to 500 or less workers.
Rate of Credit
- Credit for the year 2020 equal to fifty percent of the eligible salaries (including the cost of healthcare provided by the employer) paid to each employee The maximum amount of money that may be considered qualified wages is $10,000 per employee.
- Credits for the year 2021: Seventy percent of the eligible earnings (including employer-paid healthcare) paid to each employee for each calendar quarter for the first, second, and third calendar quarters. The maximum amount of qualified wages that can be paid to an employee in a quarter is $10,000.
Interaction of PPP Loans
Businesses that have obtained loans via the Paycheck Protection Program (commonly known as “PPP”) may also be eligible for the ERC. When the ERC was initially allowed as part of the CARES Act, it was statutorily forbidden for any organization that had previously received funds under PPP to claim an ERC. This restriction remains in effect. Later, in December 2020, the legislative bar against PPP users collecting ERC payments was eliminated. This occurred when the ERC was extended and improved as part of the Consolidated Appropriations Act.
Prerequisites for Filing an Application for the Employee Retention Credit
When applying for an ERC license, businesses are required to present the following information in order to be considered:
The total number of full-time workers employed by all of the companies that are linked to the EIN.
- Employees Working Full-Time for the Year 2019
- A full-time equivalent employee is one who works more than 130 hours per month or more than 30 hours per week.
Instructions from the government
- Think about the areas in which you may have been impacted by government instructions (causing a full or partial shutdown)
- Obtain information from all corporate sites where directives from the government may have forced a partial shutdown.
Gross Receipts
- You are required to submit your Total Gross Receipts for each of the Qualifying Quarters in 2019, 2020, and 2021.
PPP Loan Documents
- You are need to provide all of the documents pertaining to the PPP debt forgiveness in order to establish what costs are being used for forgiveness.
Wage Data
- Wages, broken down by pay cycle, for each employee within the time period that the PPP loan covers (s)
- Copies of the 941 tax returns for payroll for the years 2020 and 2021
Even if they have received PPP loans, all medical, dental, and associated practices, including those that are controlled by private equity, should assess their eligibility for ERC. This includes examining their eligibility for ERC. Many businesses are obtaining huge monetary advantages in addition to the PPP benefits that they have previously received as a result of the large number of government restrictions that will restrict routine activity in 2020 and 2021.
Contact your Cherry Bekaert adviser or Martin Karamon, Tax Principal and leader of Cherry Bekaert’s ERC Services Team, to get further information on the Employee Retention Credit and to obtain direction regarding how to qualify for the credit.