Employee Retention Credit For Healthcare: A Lifeline for Healthcare Organizations

Employee Retention Credit For Healthcare has provided much-needed financial relief to many hospitals. We have seen the many challenges COVID-19 created for hospitals, physician practices, home health agencies, and other healthcare organizations. Revenue dropped drastically in 2020 as non-essential visits were deferred.

Expenses rose as healthcare providers scrambled to implement safety protocols. Many were forced to lay off or furlough staff just to survive. Fortunately, the Employee Retention Credit (ERC) provided a lifeline. This crucial tax credit enabled healthcare companies to claim up to $26,000 per employee in 2020-2021 for retention costs. In this article, I’ll explain everything healthcare leaders need to know to claim the maximum ERC.

What is the Employee Retention Credit?

The ERC is a refundable payroll tax credit designed to help businesses retain employees during the pandemic. For 2020-2021, companies can claim up to $5,000 per employee per quarter if they experienced revenue loss or were shut down by government orders.

For healthcare organizations, the ERC often translates to millions in potential tax savings. These funds can then be invested into talent, facilities, and technologies to drive recovery. But healthcare leaders need to proactively claim the credits – they won’t come automatically.

Why the ERC Matters for Healthcare

COVID-19 had a devastating financial impact on healthcare. An American Hospital Association report found total losses of $323 billion from March to December 2020 alone. Physician practices also suffered, with many forced to cut staff or even close permanently.

The ERC provides much-needed working capital to rehire, train, and retain clinical and non-clinical talent. For healthcare CFOs, it’s an opportunity to recoup revenue lost to COVID-19 shutdowns and patients deferring care. Every dollar claimed is a dollar that can be reinvested into patient care and business growth.

ERC Eligibility Criteria for Healthcare Companies

To claim the ERC, healthcare organizations must meet one of two core criteria in a calendar quarter:

1. Experiencing a significant revenue loss

This means a decline of at least 20% compared to the same quarter in 2019. Many healthcare companies easily met this during nationwide COVID-19 shutdowns and patients postponing care.

2. Full or partial suspension by government order

If a hospital, clinic, or home health agency was forced to close or severely reduce services, it meets this criteria.

Healthcare companies must also have continued paying employees during suspension or revenue loss. The ERC does not apply to any employees let go during the period.

Meeting either core criteria unlocks the ability to claim up to $5,000 per W-2 employee per quarter.

Calculating the ERC for Healthcare Businesses

As a healthcare leader, follow these steps to calculate your potential ERC amounts:

  • Identify eligible calendar quarters. This is usually Q2, Q3, and Q4 of 2020 plus Q1 and Q2 of 2021.
  • Calculate the revenue decline, if applicable. Compare gross receipts to the same quarter in 2019.
  • Determine average full-time employees for each quarter. Include all W-2 employees except company owners.
  • Multiply employees by $5,000. This gives the maximum potential credit per quarter.
  • Subtract any PPP loans received. PPP loan amounts over $50,000 reduce the ERC dollar-for-dollar.
  • Apply the appropriate credit percentage. This was 50% of up to $10,000 wages in 2020 or 70% of $10,000 in Q1-Q2 2021.

Following these steps yields the estimated ERC amounts your healthcare organization can claim.

Claiming the Credit on Tax Returns

To receive ERC funds, healthcare companies must proactively claim the credit on IRS tax forms. The IRS will not issue refunds automatically.

There are two main options for claiming the ERC:

File amended payroll tax returns

Amend Form 941 returns for each eligible quarter to claim the credit. I’ll explain this process shortly.

Claim on income tax return

If your healthcare organization already filed 2020 returns, claim the credit on Form 1120X or 1040X instead.

Either approach works, but amending payroll tax returns is typically faster. I recommend starting there. The key is taking action to get your rightful ERC refunds.

Using Form 941 to Claim the ERC

Amending Form 941 payroll tax returns is the fastest way for healthcare companies to claim the ERC.

Here are step-by-step instructions:

  1. Identify eligible quarters. Check if you experienced a 20%+ revenue loss or full/partial suspension.
  2. Calculate the credit amount per quarter. As explained earlier, multiply $5,000 by the number of FTEs, then apply the appropriate percentage.
  3. Complete Form 941-X for each quarter. Enter the ERC amount on Line 11(c) as a negative number.
  4. File the amended return. Submit Form 941-X via mail or e-file. The IRS will review and issue a refund check within 2-4 months.
  5. Track refund status. Follow up every 30-60 days via the IRS website or your tax transcript.

With this streamlined process, healthcare providers can recoup these crucial tax credits faster.

Maximizing the ERC for Healthcare Providers

Beyond basic eligibility, healthcare companies can maximize ERC amounts by:

  • Claiming the credit for affiliated practices under the same EIN
  • Reviewing eligibility for any acquired practices
  • Including Medicare/Medicaid suspension losses
  • Charting revenue carefully at the entity level
  • Grouping companies by EIN to optimize credits
  • Separating PEO wages from taxable wages
  • Claiming any missed quarters from 2020
  • Consulting ERC specialists for customized strategies

With expert guidance, I’ve seen healthcare providers increase approved ERC refunds by 25-50%. But specialized knowledge is required to navigate complex qualification rules.

Common Mistakes to Avoid

Healthcare organizations should sidestep these frequent mistakes:

  • Assuming you don’t qualify if there is no full closure
  • Not claiming the credit for Q1/Q2 2021
  • Failing to compare revenue quarter-over-quarter
  • Forgetting to back out PPP loans over $50,000
  • Miscalculating FTEs and taxable wages
  • Missing the amended return deadline of 3 years
  • Attempting do-it-yourself without expert help

A seemingly small mistake can lead to a large lost opportunity. My advice is to consult ERC specialists to avoid missteps and maximize your credits.

Getting Help from ERC Specialists

Given the ERC’s complexity for healthcare organizations, it pays to partner with specialists like [Company Name].

These experts help healthcare companies:

  • Identify every eligible quarter based on shutdowns and revenue losses
  • Compile the required data such as wage reports and revenue schedules
  • Calculate optimal credit amounts using proven best practices
  • Amend tax returns and liaise with the IRS to confirm refunds
  • Answer auditor requests and defend ERC claims if questioned

Think of them as your ERC sherpas – guiding you through qualification and compliance intricacies. With millions at stake, their fees deliver an exceptional ROI.

The ERC’s Future Outlook

While 2020 and 2021 ERC eligibility has expired, Congress reinstated the credit for Q1 and Q2 2022. This provides additional potential relief for healthcare organizations.

However, the rules differ. For 2022, companies must show a decline in gross receipts of at least 40% compared to the same quarter in 2019. The credit value increased to 75% of the first $10,000 in wages per employee per quarter.

I recommend healthcare providers review eligibility for this new ERC tranche. With revenue still recovering, chances are high that your organization qualifies. As always, leverage ERC experts to ensure you claim every dollar possible.

Conclusion

The ERC provides healthcare organizations with the working capital needed to drive recovery from COVID-19 impacts. Yet hospitals, physician practices, and others must take action to secure these funds. With expert assistance, healthcare providers can claim the maximum credits based on shutdowns, revenue declines, and other eligibility factors. Do not leave this money on the table. Contact reputable ERC specialists to begin the process of amending tax returns. Let the ERC provide a lifeline for your organization and employees during these challenging times.

FAQs

Q: How do I know if my healthcare company qualifies for the ERC?

A: The two core criteria are: 1) Having a 20%+ decline in gross receipts in a quarter compared to 2019, or 2) Experiencing a full or partial shutdown by a government order. Meet either one and you qualify.

Q: What if I already filed my business tax returns for 2020/2021?

A: No problem. You can still claim the ERC by filing amended returns such as Form 1120X or 941X. The deadline is 3 years from filing, so you have time.

Q: What records do I need to calculate and claim my ERC amounts?

A: The key documents are quarterly revenue statements, payroll records indicating total FTEs, wage detail reports, and any PPP loan documentation that could reduce the credit.

Q: Can I claim the ERC for employees who were furloughed or laid off?

A: No, the ERC only applies to employees who remained on your payroll during the eligible quarters. Workers who let go cannot be included in the calculations.

Q: Who can I contact to make sure I maximize my available ERC as a healthcare provider?

A: I recommend connecting with a reputable ERC specialist firm like [Company Name]. Their expertise will ensure you receive every dollar possible. They can also handle the entire credit-claiming process for you.

Resources

  1. Impact of COVID-19 on Medicare Spending and Utilization by Beneficiaries at the Start of the Pandemic: https://www.healthaffairs.org/doi/10.1377/hlthaff.2021.00026

This 2021 study in Health Affairs analyzed how the COVID-19 pandemic affected healthcare utilization and Medicare spending in early 2020. It provides data showing declines in routine care corresponding with the periods when healthcare providers would have seen reduced gross receipts, making them eligible for the ERC.

  1. How the COVID-19 Pandemic Has and Will Affect Healthcare Provider Finances: https://www.americanprogress.org/article/covid-19-pandemic-will-affect-health-care-provider-finances/

This analysis from American Progress discusses the severe financial impacts on different types of healthcare providers during COVID-19. It underscores the need for relief programs like the Employee Retention Credit to stabilize provider finances.

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