Employee Retention Credit (ERC) for Healthcare Practices

Has your healthcare practice heard about the Employee Retention Credit (ERC)? If not, you’re not alone. Even if you have heard about it, you may not have tried to claim it because your practice didn’t qualify at the time. 

The ERC can put money back in your pocket—factoring in things like wages and qualified health plan expenses for employee retention credit (including ERC health insurance costs)—and that can be lifesaving given the state of healthcare staffing today. 

We’ll explain everything you need to know about the Employee Retention Credit in this guide.

What Is the Employee Retention Credit?

The Employee Retention Credit is a refundable tax credit that the government offers to businesses, including medical and dental practices. The government originally offered this credit through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act was intended to provide relief for hard-hit businesses during the COVID-19 pandemic.

At first, businesses that took advantage of the Paycheck Protection Program (PPP) couldn’t claim the ERC credit. The PPP loan program ended on May 31, 2021, but before then, qualifying businesses could get an advance payment to help them keep their doors open during the pandemic.

The government lifted restrictions on which businesses could claim the Employee Retention Credit on December 27, 2020, through the Consolidated Appropriations Act (CAA). Thanks to the CAA, over a million more employers qualify for the ERC, and your practice could be one of them.

Who Is Eligible for the ERC?

As a healthcare provider, do you qualify for this refundable payroll tax credit? You’ll need to meet one of two requirements to qualify for the Employee Retention Tax Credit. ERC eligibility requirements for employer credits include:

• A reduction in gross receipts
• A partial or full suspension of business operations due to a governmental order during the COVID-19 pandemic

The government also expanded the ERC to recovery startup businesses. An eligible employer must:

• Have at least one employee (independent contractors don’t count)
• Have started their business on or after February 15, 2020
• Have annual gross receipts totaling less than $1 million for 2020 and 2021

How Much Is the ERC?

How much the ERC is worth depends on the year you’re claiming the credit for, the qualifying wages you paid, and the healthcare costs paid for employees.

For 2020, you can get an employment tax credit of up to $5,000 per eligible employee. For 2021, the credit increases to $7,000 per employee.

ERC Eligibility Requirements for Healthcare Practices

Let’s talk about the “reduction in gross receipts” requirement a bit more. Reduction amounts differ depending on whether you want to claim the Employee Retention Credit for a healthcare practice for the 2020 or 2021 tax year.

For 2020, you’ll need to show a 50% reduction in gross receipts compared to the same period in 2019.

The government relaxed this requirement for the 2021 tax year. To qualify for 2021, you’ll only need to show a 20% reduction in gross receipts.

An employer’s gross receipts can include:

• Gross revenue
• Investment income from royalties, annuities, interest, dividends, or rents

If you don’t meet the gross receipts test, you could still qualify if your practice shut down due to government orders during the pandemic. However, you must have kept your employees on payroll during the covered period. On top of that, you must have paid them at least 75% of their regular wages.

Scenarios that would pass the government mandate test include:

• The government ordered you to shut down your practice during the pandemic. When you reopened, you had to limit how many patients you could see per day.
• You had to follow strict spacing requirements in your waiting room, which cut down the number of patients you could serve.
• Your office had to stop performing elective procedures during the pandemic, so your practice lost revenue.

Calculating ERC

How much can you get if you qualify for the Employee Retention Credit? For the 2020 tax year, the ERC is 50% of qualifying wages and qualified health plan expenses of up to $10,000 per employee (for a total credit of $5,000 per employee).

The 2021 ERC is 70% of eligible wages and healthcare costs of up to $10,000 per employee per quarter. Qualifying businesses can get a credit of up to $7,000 per employee per quarter (up to $28,000 for the year).

But what exactly are qualified wages? What the IRS considers “eligible wages” depends on whether you qualify as a small employer or a large one. 

For large employers, qualified wages include those that you paid to employees who were not providing services for your company during the covered period. The IRS considers you a large employer if you paid wages to over 100 employees in 2020 and 500 employees in 2021.

If you paid wages to fewer employees than that, the IRS considers you a small business for purposes of the ERC. This matters because, as a small business, all wages paid qualify you for the credit, even wages you paid to employees who were actively working for you at the time.

It’s possible to claim the ERC for both 2020 and 2021 if you qualify. However, only recovery startup businesses can claim the ERC credit for the fourth quarter of 2021.

Calculating the ERC can be quite complicated. If you’re not sure how to do it, explore the IRS’s Employee Retention Credit FAQ or contact a certified public accountant or wealth management specialist.

Claiming the ERC

To claim the Employee Retention Credit, eligible businesses should withhold required deposits for payroll taxes. You can either request a refund or a credit on your quarterly filed International Revenue Service (IRS) Form 941.

If you’ve already filed your IRS Form 941, you’ll need to file an amended payroll tax return. On your tax return, you can make a refund request for the ERC.

Interested in learning more about the current crisis in healthcare staffing? We invite you to download our free e-book, “The State of Healthcare for Private Practices.”

Want more
healthcare
insights?
More than half of small healthcare practices get complaints about their front office staff at least monthly
 Weave surveyed medical professionals to understand the trends of small healthcare practices across the U.S.
Download Ebook