Understanding Employee Retention Tax Credit (ERTC)
The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit for employers who have been negatively affected by the COVID-19 pandemic. The credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and has since been extended to apply to qualified wages paid between March 12, 2020, and December 31, 2021. ERTC is designed to incentivize eligible employers to keep their employees on the payroll, by offering a tax break on the wages paid to those employees.
Eligibility Criteria for ERTC
To qualify for ERTC, employers must meet one of two criteria:
– Fully or partially suspend operations during any quarter in 2020 or 2021 due to government orders related to COVID-19, OR
– Experience a significant decline in gross receipts during any calendar quarter in 2020 or 2021.
The significant decline is defined as more than a 50% decline in gross receipts compared to the same quarter in the previous year. For 2021, the threshold has been lowered to 20% instead of 50%, making it easier for eligible employers to qualify for the credit.
Maximum Credit Amount for Qualified Wages and Health Plan Expenses
Eligible employers can claim a tax credit equal to 50% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee per year. This means the maximum credit amount per employee is $5,000 for 2020 and $7,000 for each quarter of 2021. Qualified wages include cash compensation and qualified health plan expenses, but not more than one program. The IRS has issued guidance on “qualified health expenses” under ERTC, which mirrors FFCRA guidance.
How ERTC Differs from the Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) is another federal program that was introduced to help small businesses stay afloat during the pandemic. PPP provides loans to eligible businesses, and part or all of the loan may be forgiven if certain criteria are met. ERTC, on the other hand, is a tax credit that can be claimed by eligible employers on their federal employment tax returns. While both programs are designed to help businesses retain their employees, there are some key differences between the two, including eligibility criteria, maximum credit amount, and how the funds can be used.
Claiming Tax Benefits under ERTC
Eligible employers can claim ERTC as a refundable tax credit on their federal employment tax returns. In order to claim the credit, employers must meet the eligibility criteria and calculate the qualified wages and health plan expenses.
Types of Qualified Wages and Health Plan Expenses
To be eligible for ERTC, employers must have paid qualified wages and health plan expenses to their employees. According to Lockton, qualified wages include cash compensation and qualified health plan expenses, but not more than one program.
Qualified health plan expenses are amounts paid or incurred by an eligible employer to provide and maintain a group health plan, but only to the extent that those amounts are excluded from the gross income of employees by reason of section 106(a) of the Internal Revenue Code. The IRS has issued guidance on “qualified health expenses” under ERTC, which mirrors FFCRA guidance, as mentioned by Lockton.
How to Calculate the Tax Credit for Eligible Expenses
Eligible employers can claim a tax credit equal to 50% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee per year. Qualified health plan expenses are also eligible for the credit, subject to certain limitations.
To calculate the credit amount for eligible expenses, employers must determine the total qualified wages and health plan expenses paid during the calendar quarter, and then calculate the credit as 50% of that total, up to the maximum amount per employee. The credit is then applied against the employer's share of Social Security taxes on those wages, as per the Horton Group.
How to Claim the Credit on an Employer's Federal Employment Tax Return
To claim ERTC, eligible employers must report the credit amount on their federal employment tax returns, such as Form 941 or Form 943. The credit can be used to offset certain federal employment taxes, including the employer's share of Social Security taxes. If the credit amount exceeds the amount of federal employment taxes owed, the excess can be refunded to the employer.
Employers should consider discussing claiming tax benefits with their payroll advisor and study the new rules and guidance provided by the IRS, as advised by Lockton. This can help them to determine their eligibility for ERTC and ensure they are taking advantage of the maximum credit amount available to them, as per CBH.
How to Maximize ERTC Benefits for Healthcare
Healthcare employers have been hit hard by the COVID-19 pandemic, with many facing financial hardships as a result of reduced patient volumes and increased expenses. ERTC can provide much-needed relief for healthcare employers, but it's important to understand how to maximize the benefits available.
Determine Eligibility for ERTC
The first step in maximizing ERTC benefits is to determine eligibility for the credit. Healthcare employers must meet the eligibility criteria outlined in section 2, which includes experiencing a significant decline in gross receipts or fully or partially suspending operations due to COVID-19. Healthcare employers should also consider whether they are eligible for other COVID-19 relief programs, such as PPP loans, and how those programs interact with ERTC.
Calculate Qualified Wages and Health Plan Expenses
Once eligibility has been determined, healthcare employers must calculate the qualified wages and health plan expenses for each employee. As mentioned in section 2, qualified wages include cash compensation and qualified health plan expenses, subject to certain limitations. Healthcare employers should also consider whether any wages or health plan expenses have been claimed under other COVID-19 relief programs, such as FFCRA.
Claiming ERTC on Federal Employment Tax Returns
Healthcare employers can claim ERTC on their federal employment tax returns, such as Form 941 or Form 943. The credit can be used to offset certain federal employment taxes, including the employer's share of Social Security taxes. If the credit amount exceeds the amount of federal employment taxes owed, the excess can be refunded to the employer.
Seek Professional Advice
Healthcare employers should consider seeking professional advice from their payroll advisor or tax professional to ensure they are maximizing the benefits available under ERTC. They should also stay up-to-date on the latest guidance and regulations from the IRS, as they may impact eligibility and calculation of the credit.
Examples of ERTC Benefits for Healthcare
Several healthcare employers have already taken advantage of ERTC to provide financial relief during the pandemic. For example, CBIZ](https://www.cbiz.com/covid19) helped a healthcare client claim over $400,000 in ERTC for qualified wages paid during the pandemic. [Baker Tilly helped a healthcare provider claim over $100,000 in ERTC for qualified wages paid during a partial suspension of operations.
These examples demonstrate the potential benefits of ERTC for healthcare employers, and highlight the importance of understanding eligibility and maximizing the credit amount available.
Potential Challenges with Claiming ERTC for Healthcare
While ERTC provides much-needed relief for healthcare employers during the pandemic, there are potential challenges and issues that employers may face when claiming the credit. It's important to be aware of these challenges and how to address them.
Interaction with Other COVID-19 Relief Programs
One potential challenge with claiming ERTC is the interaction with other COVID-19 relief programs, such as PPP loans and FFCRA. As mentioned in section 3, healthcare employers should consider whether any wages or health plan expenses have been claimed under these programs, as they may impact the amount of ERTC available. It's important to understand the rules and regulations of each program and how they interact with ERTC.
Calculation of Qualified Wages and Health Plan Expenses
Another challenge with claiming ERTC is the calculation of qualified wages and health plan expenses. As mentioned in section 3, employers must determine the total qualified wages and health plan expenses paid during the calendar quarter, and then calculate the credit as 50% of that total, up to the maximum amount per employee. Healthcare employers may face challenges in determining which wages and expenses are eligible for the credit, and how to properly allocate them across employees.
Documentation and Record-Keeping
A third challenge with claiming ERTC is documentation and record-keeping. Employers must maintain records that support the calculation of the credit, including documentation of the qualified wages and health plan expenses paid to each employee. Healthcare employers should ensure they have proper systems in place to track and document these expenses, and should retain records for at least four years after the due date of the tax return on which the credit was claimed.
Seeking Professional Advice
Given these potential challenges, healthcare employers should consider seeking professional advice from their payroll advisor or tax professional to ensure they are properly claiming the credit. These professionals can provide guidance on eligibility, calculation of the credit, and record-keeping requirements.
Examples of ERTC Challenges for Healthcare
Several healthcare employers have faced challenges when claiming ERTC, highlighting the importance of understanding the rules and regulations of the credit. For example, a healthcare provider in Minnesota was denied ERTC for qualified health plan expenses paid to furloughed employees, but was later able to claim the credit after the IRS changed its stance, according to SHRM](https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-reverses-course-on-employee-retention-credit-for-qualified-health-plan-expenses-coronavirus.aspx). Another healthcare provider faced challenges in determining the allocation of qualified wages and health plan expenses across employees, as reported by [Becker's Hospital Review.
These examples demonstrate the potential challenges with claiming ERTC for healthcare employers, and highlight the importance of seeking professional advice and understanding the rules
Conclusion
The Employee Retention Tax Credit (ERTC) has provided much-needed relief for healthcare employers during the COVID-19 pandemic. By claiming the credit, healthcare employers can offset the costs of maintaining their workforce and providing health insurance benefits to their employees.
However, there are potential challenges and issues with claiming ERTC, including the interaction with other COVID-19 relief programs, the calculation of qualified wages and health plan expenses, and documentation and record-keeping requirements. Healthcare employers should be aware of these challenges and seek professional advice to ensure they are properly claiming the credit.
Despite these challenges, several healthcare employers have already taken advantage of ERTC to provide financial relief during the pandemic. By understanding eligibility, calculating qualified wages and health plan expenses, and properly claiming the credit, healthcare employers can maximize the benefits available and continue to provide quality care to their patients.
If you're a healthcare employer and want to learn more about how to claim ERTC, consult your payroll advisor or tax professional. They can provide guidance on eligibility, calculation of the credit, and record-keeping requirements, and help ensure you're maximizing the benefits available.
Additional Resources for ERTC and Healthcare Employers
As healthcare employers navigate the complex rules and regulations of ERTC, there are several resources available to help them maximize the benefits of the credit. These resources include:
The IRS
The IRS website provides a wealth of information on ERTC, including guidance on eligibility, calculation of the credit, and documentation requirements. Healthcare employers should consult the IRS website regularly for the latest updates and guidance on the credit.
Payroll and Tax Professionals
Payroll and tax professionals can provide guidance on ERTC and help healthcare employers determine eligibility, calculate the credit, and properly claim the credit on their federal employment tax returns. These professionals can also provide advice on record-keeping requirements and other compliance issues.
Industry Associations
Industry associations, such as the American Hospital Association and the Medical Group Management Association, can provide resources and guidance on ERTC for their members. Healthcare employers should consider joining these associations to stay up-to-date on the latest developments and best practices in the industry.
Legal and Consulting Firms
Legal and consulting firms can provide guidance on ERTC and other COVID-19 relief programs for healthcare employers, including advice on compliance, risk management, and strategic planning. These firms can also provide assistance with documentation and record-keeping requirements.
Conclusion
By leveraging these resources, healthcare employers can maximize the benefits of ERTC and continue to provide quality care to their patients during the pandemic. Whether consulting with payroll and tax professionals, joining industry associations, or seeking guidance from legal and consulting firms, healthcare employers have a range of options available to help them navigate the complex rules and regulations of the credit.
Ready to Claim ERTC for Your Healthcare Business?
If you're a healthcare employer looking to claim the Employee Retention Tax Credit (ERTC), there are several steps you can take to maximize the benefits of the credit. These steps include:
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Understanding eligibility requirements: Healthcare employers should review the eligibility requirements for ERTC, including the impact of other COVID-19 relief programs on the credit.
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Calculating qualified wages and health plan expenses: Healthcare employers should carefully calculate qualified wages and health plan expenses to ensure they are claiming the maximum credit available.
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Documenting and record-keeping: Healthcare employers should maintain accurate records of qualified wages and health plan expenses to support their claim for ERTC.
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Seeking professional advice: Healthcare employers should consider seeking guidance from payroll and tax professionals, industry associations, legal and consulting firms, and other resources to ensure they are properly claiming the credit.
By following these steps, healthcare employers can maximize the benefits of ERTC and continue to provide quality care to their patients during the pandemic.
Check Out Our Other Great Content
If you found this article informative, be sure to check out our other great content on topics such as healthcare compliance, employee benefits, and tax planning. We provide expert insights and guidance to help healthcare employers navigate the complex rules and regulations of the industry and maximize their financial and operational performance.
Q & A
Who is eligible for the employee retention tax credit for healthcare?
Healthcare employers who experienced a full or partial suspension of operations or a significant decline in gross receipts due to COVID-19.
What is the maximum credit amount for the employee retention tax credit for healthcare?
The maximum credit amount is 50% of qualified wages and health plan expenses, up to $10,000 per employee per quarter.
How do healthcare employers claim the employee retention tax credit?
Healthcare employers can claim the credit on their federal employment tax returns for the relevant calendar quarter.
Who can healthcare employers seek guidance from for claiming the employee retention tax credit?
Healthcare employers can seek guidance from payroll and tax professionals, industry associations, legal and consulting firms, and the IRS.
What are qualified health expenses for the employee retention tax credit for healthcare?
Qualified health expenses include amounts paid or incurred by an eligible employer to provide and maintain a group health plan, but only to the extent that those amounts are excluded from the gross income of employees by reason of section 106(a) of the Internal Revenue Code.
How does the employee retention tax credit for healthcare interact with other COVID-19 relief programs?
Healthcare employers cannot claim the credit for wages and health plan expenses that are paid with funds from other COVID-19 relief programs, such as the Paycheck Protection Program (PPP).
What documentation and record-keeping requirements are there for the employee retention tax credit for healthcare?
Healthcare employers must maintain accurate records of qualified wages and health plan expenses to support their claim for the credit, and must file relevant forms and schedules with their federal employment tax returns.
