Employee Retention Tax Credit for Assisted Living Facilities: What You Need to Know

Assisted living facilities have been hit hard by the COVID-19 pandemic, with many experiencing significant financial losses due to the necessary safety measures put in place. However, there is a potential benefit that may have been overlooked by many of these facilities: the employee retention credit (ERC).

The ERC is a refundable tax credit that is available to certain employers who have experienced a significant decline in gross receipts or whose operations have suffered due to the pandemic. This credit can be claimed by eligible businesses and tax-exempt organizations that had employees during the pandemic and were affected by it. For assisted living facilities, this credit could provide much-needed relief in the form of a tax credit for retaining their employees.

Many senior living and long-term care organizations may qualify for the ERC, but they may not be aware of it. With the pandemic still affecting many businesses, including assisted living facilities, it is important to explore all available options for financial relief. This article will delve into the specifics of the ERC and how it applies to assisted living facilities.

Understanding the Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable tax credit that is available to businesses and tax-exempt organizations that were affected by the COVID-19 pandemic. The credit was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, and it was expanded and extended by the Consolidated Appropriations Act (CAA) in December 2020 and the American Rescue Plan Act (ARPA) in March 2021.

The ERC is designed to help businesses keep employees on their payroll by providing a tax credit for a portion of the wages paid to those employees. The credit is equal to 70% of qualified wages paid between March 13, 2020, and December 31, 2021, up to a maximum of $10,000 per employee per quarter. This means that the maximum credit per employee is $28,000 for the entire period.

To be eligible for the ERC, a business must meet one of two criteria. First, the business must have experienced a significant decline in gross receipts during a calendar quarter in 2020 or 2021 compared to the same quarter in 2019. Second, the business must have been fully or partially suspended by government order due to COVID-19 during a calendar quarter in 2020 or 2021.

Assisted living facilities may be eligible for the ERC if they meet the eligibility criteria. The credit can be claimed on wages paid to employees who are providing services related to the care of residents, such as nurses, aides, and other care staff. However, the credit cannot be claimed on wages paid to employees who are not providing direct care to residents, such as administrative staff.

It is important to note that the ERC cannot be claimed on wages that were paid with funds from a forgiven Paycheck Protection Program (PPP) loan. In addition, the credit cannot be claimed on wages that were used to calculate other tax credits, such as the Work Opportunity Tax Credit or the Paid Family and Medical Leave Credit.

The IRS provides detailed guidance on the ERC, including how to claim the credit and how to calculate the credit amount. It is recommended that businesses consult with a tax professional to ensure that they are eligible for the credit and that they are claiming the credit correctly.

Eligibility Criteria for Assisted Living Facilities

Assisted living facilities may be eligible for the Employee Retention Credit (ERC) if they meet certain criteria. The ERC is a refundable tax credit that provides up to $26,000 per employee for eligible employers.

To be eligible, an assisted living facility must have experienced either a full or partial suspension of operations due to a government order related to COVID-19. Alternatively, the facility must have experienced a significant decline in gross receipts compared to the same calendar quarter in 2019.

The gross receipts test is a key eligibility requirement for the ERC. An assisted living facility must demonstrate that its gross receipts for a calendar quarter in 2021 were less than 80% of its gross receipts for the same calendar quarter in 2019. If the facility did not exist in 2019, it may compare its 2021 gross receipts to its gross receipts for the same calendar quarter in 2020.

Additionally, the ERC is available for wages paid between March 13, 2020, and December 31, 2021. The credit is equal to 50% of qualified wages, up to $10,000 per employee per calendar quarter.

It is important to note that if an assisted living facility received a Paycheck Protection Program (PPP) loan, it may still be eligible for the ERC. However, the same wages cannot be used to calculate both the ERC and PPP loan forgiveness.

Assisted living facilities should consult with a qualified tax professional to determine their eligibility for the ERC and to ensure that they are properly claiming the credit.

Calculating the Employee Retention Credit

Assisted living facilities may be eligible for the Employee Retention Credit (ERC), a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. To calculate the ERC, the facility needs to determine the qualified wages paid to each employee during the eligible period.

Qualified wages are wages paid to employees during the eligible period, which is from March 13, 2020, to December 31, 2021. The eligible wages depend on the number of full-time employees. For facilities with 100 or fewer full-time employees, all wages paid during the eligible period are qualified wages. For facilities with more than 100 full-time employees, qualified wages are wages paid to employees who were not providing services during the eligible period.

The ERC is calculated as 50% of qualified wages paid during the eligible period, up to a maximum of $10,000 per employee. The credit is calculated every quarter and can be claimed on Form 941, Employer’s Quarterly Federal Tax Return.

To claim the ERC, the facility needs to meet certain requirements. The facility must have experienced a significant decline in gross receipts or been subject to a government-mandated partial suspension of operations due to COVID-19. The facility must also not have received a Paycheck Protection Program (PPP) loan or must have used the PPP loan for expenses other than payroll.

For small employers, which are employers with 500 or fewer employees, the ERC is available for all wages paid during the eligible period, regardless of whether the wages were paid to employees who were providing services or not. Small employers can claim the ERC even if they did not experience a significant decline in gross receipts or were not subject to a government-mandated partial suspension of operations due to COVID-19.

In conclusion, calculating the ERC for assisted living facilities requires determining the qualified wages paid to each employee during the eligible period. The ERC is calculated as 50% of qualified wages paid during the eligible period, up to a maximum of $10,000 per employee. To claim the ERC, the facility needs to meet certain requirements, including a significant decline in gross receipts or a government-mandated partial suspension of operations due to COVID-19. For small employers, the ERC is available for all wages paid during the eligible period.

Claiming the Employee Retention Credit

Assisted living facilities can claim the Employee Retention Credit (ERC) against certain employment taxes. The ERC is a refundable tax credit equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2022.

To claim the ERC, eligible employers can file Form 941, Employer’s Quarterly Federal Tax Return, to report their Social Security, Medicare, and withheld federal income taxes. They can also use Form 7200, Advance Payment of Employer Credits Due to COVID-19, to request an advance payment of the credit.

If an eligible employer has already reduced their employment tax deposits in anticipation of the ERC, they can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the credit. They must reduce their deduction for wages by the amount of the credit for that same tax period.

The ERC is a refundable tax credit, which means that if the amount of the credit exceeds the employer’s applicable employment taxes, the employer is entitled to a refund. The employer can also use any excess credit to offset other federal tax liabilities.

It is important to note that the ERC is only available to eligible employers. An eligible employer is an employer that experienced a full or partial suspension of operations due to a government order or a significant decline in gross receipts. The employer must also have had an average of 500 or fewer full-time employees in 2019.

In summary, assisted living facilities can claim the ERC by filing Form 941 or Form 7200, or by filing Form 941-X if they have already reduced their employment tax deposits. The ERC is a refundable tax credit that can be used to offset federal tax liabilities or refunded to the employer. Eligible employers can claim the ERC if they experienced a full or partial suspension of operations due to a government order or a significant decline in gross receipts, and had an average of 500 or fewer full-time employees in 2019.

Potential Penalties and Interests

Assisted living facilities that claim the Employee Retention Credit (ERC) should be aware of the potential penalties and interests that may apply if they fail to comply with the requirements. The IRS may impose penalties and interests on employers who do not meet the eligibility criteria or who fail to provide accurate information on their payroll tax returns.

Penalties may apply if the employer claims the ERC for ineligible wages or if they claim the credit for wages that were not paid during the eligible period. The IRS may also impose penalties if the employer fails to reduce their payroll tax deposits by the amount of the credit claimed or if they fail to properly document their eligibility for the credit.

In addition to penalties, employers may also be subject to interest on any unpaid taxes. The interest rate is determined by the IRS and is based on the federal short-term rate plus 3%. Interest accrues from the due date of the tax return until the date the taxes are paid in full.

To avoid penalties and interests, assisted living facilities should ensure that they meet the eligibility criteria for the ERC and that they provide accurate information on their payroll tax returns. They should also maintain proper documentation to support their eligibility for the credit.

If an employer receives a notice from the IRS regarding penalties or interests, they should respond promptly and provide any necessary documentation to support their claim for the ERC. Employers may also request a waiver of penalties or interests if they can demonstrate reasonable cause for their non-compliance.

Overall, assisted living facilities should be aware of the potential penalties and interests that may apply if they claim the ERC and should take steps to ensure compliance with the requirements.

Updates and Further Guidance

Assisted living facilities may be eligible for the Employee Retention Credit (ERC) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The IRS has issued guidance for employers claiming the ERC for the first two quarters of 2021 (IRS.gov).

The Treasury Department and the IRS have also provided additional guidance for employers claiming the ERC, including for the third and fourth quarters of 2021 (IRS.gov). This guidance includes information on how employers can claim the credit retroactively for qualified wages paid after March 12, 2020, and before January 1, 2022.

Assisted living facilities may be able to claim the ERC if they experience either a full or partial suspension of operations due to a government order or a significant decline in gross receipts. The ERC is a fully refundable tax credit that can be used to offset certain employment taxes, including Social Security and Medicare taxes.

Assisted living facilities should review the guidance provided by the IRS to determine if they are eligible for the ERC and how to claim the credit. It is important to note that the ERC cannot be claimed for the same wages used to claim the Families First Coronavirus Response Act (FFCRA) paid leave credits or the Work Opportunity Tax Credit (WOTC).

In summary, assisted living facilities may be eligible for the ERC under the CARES Act, and the IRS has guided employers claiming the credit for 2020 and 2021. The ERC is a fully refundable tax credit that can be used to offset certain employment taxes, and assisted living facilities should review the guidance provided by the IRS to determine if they are eligible for the credit and how to claim it.

Frequently Asked Questions

What conditions make a facility eligible for the Employee Retention Credit?

To be eligible for the Employee Retention Credit (ERC), an assisted living facility must have experienced a full or partial suspension of operations due to government orders related to COVID-19. Alternatively, the facility must have experienced a significant decline in gross receipts, defined as a decline of 20% or more in gross receipts for a calendar quarter in 2020 compared to the same quarter in 2019.

What is the maximum amount of the Employee Retention Credit?

The maximum amount of the ERC is $5,000 per employee in 2020 and $7,000 per employee per quarter for the first three quarters of 2021.

Which employees are eligible for the Employee Retention Credit?

All employees of an eligible assisted living facility are eligible for the ERC, including full-time, part-time, and seasonal employees. However, the credit is not available for wages paid to owners or their spouses, children, or parents.

How does the Medicare cost report factor into the Employee Retention Credit?

The Medicare cost report is used to calculate the allowable wage base for the ERC. The allowable wage base is the amount of wages paid to eligible employees during the period of eligibility.

What are some common reasons for disqualification from the Employee Retention Credit?

Assisted living facilities may be disqualified from the ERC if they receive a Paycheck Protection Program (PPP) loan or if they claim the ERC for wages that are also used to claim other tax credits, such as the Work Opportunity Tax Credit (WOTC) or the Family and Medical Leave Act (FMLA) tax credit.

Are there any other tax credits available for assisted living facilities besides the Employee Retention Credit?

Yes, there are other tax credits available for assisted living facilities, such as the WOTC and the FMLA tax credit. These tax credits can help offset the cost of hiring and retaining employees.

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