Employee Retention Tax Credit for Dental Offices: What You Need to Know

Dental offices have been hit hard by the COVID-19 pandemic, and many have struggled to retain their employees. To help alleviate some of the financial burden, the government has introduced the Employee Retention Tax Credit (ERTC). This tax credit is designed to encourage eligible dental practices to retain their employees on the payroll in 2020 and 2021 by providing a tax credit of up to $5,000 per employee for March 13-Dec. 31, 2020, and $7,000 per quarter and per employee between the period of Jan. 1- Sept. 30, 2021.

The ERTC is available to dental practices that meet certain criteria. For 2020, the credit is 50% of up to a maximum of $10,000 in qualified wages and costs for employee health insurance (including dental) for each full-time employee beginning March 13 and ending Dec. 31, 2020. Therefore, the maximum tax credit you can receive per employee is $5,000. For 2021, the credit is 70% of up to a maximum of $10,000 in qualified wages and costs per quarter for each full-time employee. Therefore, the maximum tax credit you can receive per employee is $7,000 per quarter.

To qualify for the ERTC, dental practices must meet certain eligibility requirements. For example, they must have experienced a significant decline in gross receipts or been subject to a full or partial suspension of operations due to government orders related to COVID-19. Additionally, they must have fewer than 500 employees and must not have received a Paycheck Protection Program (PPP) loan. Dental practices that received a PPP loan may still be eligible for the ERTC, but they cannot claim the credit for wages that were paid with PPP funds.

Understanding the Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is a payroll tax credit provided by Congress to eligible employers, including dental practices, that were financially impacted by the COVID-19 pandemic. The ERTC was established as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

The ERTC is a refundable tax credit that provides financial relief to businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. The requirements for eligibility are different depending on the time period for which the credit is claimed.

To be eligible for the ERTC, businesses must meet certain eligibility requirements, including demonstrating a significant decline in gross receipts or experiencing a full or partial suspension of operations due to government orders related to COVID-19. The credit is equal to 70% of qualified wages paid to employees, up to $10,000 per employee per quarter.

The IRS provides detailed guidance on the eligibility requirements and how to claim the credit. Dental practices should consult with their tax advisors to determine if they are eligible for the ERTC and how to claim the credit.

It is important to note that dental practices that received a Paycheck Protection Program (PPP) loan can also take advantage of the ERTC. However, the same wages cannot be used for both the PPP loan forgiveness and the ERTC.

In conclusion, the ERTC is a valuable tax credit that can provide financial relief to dental practices that were impacted by the COVID-19 pandemic. Dental practices should consult with their tax advisors to determine if they are eligible for the credit and how to claim it.

Eligibility and Limitations for Dental Practices

Dental practices are eligible for the Employee Retention Tax Credit (ERTC) if they meet certain criteria. The ERTC provides a credit of up to $7,000 per full-time employee (FTE) per quarter. To be eligible, dental practices must have experienced either a full or partial shutdown due to a government order or a significant decline in gross receipts.

For dental practices, a significant decline in gross receipts means a decline of 20% or more in gross receipts for a calendar quarter compared to the same quarter in 2019. Alternatively, dental practices can qualify for the ERTC if they experienced a decline of 20% or more in gross receipts for a calendar quarter compared to the same quarter in 2022.

Qualified wages for the ERTC include wages paid to FTEs, and the credit applies to wages paid between March 12, 2020, and December 31, 2023. Dental practices can claim the credit for wages paid during calendar quarters in which they meet the eligibility criteria.

It’s important to note that the ERTC has limitations. For dental practices with more than 500 FTEs, only wages paid to employees who were not providing services during the shutdown or decline in gross receipts period are eligible for the credit. Additionally, the ERTC cannot be claimed for wages paid with funds from a Paycheck Protection Program (PPP) loan that has been forgiven.

Dentists should exercise caution before claiming the ERTC and make sure they meet all eligibility criteria. The IRS has warned that predatory businesses offer filing assistance for large fees to businesses that are not actually eligible to claim the ERTC. Dental practices should consult with a qualified tax professional to ensure they are eligible and to properly claim the credit.

Application and Calculation of the ERTC

To apply for the Employee Retention Tax Credit (ERTC), dental offices need to meet certain criteria. The ERTC is a refundable tax credit provided by the Internal Revenue Service (IRS) to eligible employers who were financially impacted by the pandemic. The credit is available to dental practices that retained employees during the covered period and meet the gross receipts test.

To qualify for the ERTC, dental offices must have experienced a significant decline in gross receipts or were fully or partially suspended due to government orders during the covered period. The covered period for the ERTC is from March 13, 2020, through December 31, 2021.

The amount of the credit is 50% of qualified wages paid to each employee, including dental hygienists, up to a maximum of $10,000 per employee for all quarters. The maximum credit per employee is $5,000. Qualifying wages include salaries, wages, and health benefits paid to employees.

Dental offices can claim the ERTC on Form 941, Employer’s Quarterly Federal Tax Return, for the applicable quarter. If the credit exceeds the payroll tax liability, the IRS will refund the excess amount to the dental office.

It is important to note that dental offices that received a Paycheck Protection Program (PPP) loan can still claim the ERTC. However, the same wages cannot be used for both the PPP loan forgiveness and the ERTC.

To claim the ERTC, dental offices can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the applicable quarter. The IRS has provided guidance on the calculation of the credit and the forms required to claim the credit.

In conclusion, the ERTC is a valuable tax credit that can help dental offices retain employees during the pandemic. Dental offices should consult with their payroll provider or CPA to determine if they qualify for the credit and how to claim it.

Impact of PPP Loans and ERTC

The Paycheck Protection Program (PPP) was established to provide financial assistance to businesses affected by the COVID-19 pandemic. Dental offices were among the eligible businesses to receive PPP loans. The Employee Retention Tax Credit (ERTC) is another program designed to provide financial assistance to businesses that were impacted by the pandemic.

Dental offices that received PPP loans may also be eligible for the ERTC. However, the same wages cannot be used to calculate both the PPP loan forgiveness and the ERTC. This means that dental offices must carefully consider how they allocate their payroll expenses to maximize the benefits of both programs.

The Academy of Dental CPAs recommends that dental offices work with their accountants to determine the best way to allocate their payroll expenses. They also suggest that dental offices take advantage of other qualified expenses to satisfy PPP loan forgiveness requirements, allowing additional payroll expenses to be used to maximize the benefits of the ERTC.

It is important to note that dental offices that received PPP loans may still be eligible for the ERTC even if they have already received PPP loan forgiveness. The ERTC is a refundable tax credit that can be claimed on eligible wages paid between March 13, 2020, and December 31, 2021.

Government orders that forced dental offices to close or reduce operations may also impact eligibility for the ERTC. For example, if a dental office was forced to close due to a government order, they may be eligible for the ERTC even if they did not receive a PPP loan.

Dental offices should also be aware that any fees associated with the PPP loan are not eligible for the ERTC. Additionally, any interest paid on the PPP loan is not eligible for the ERTC.

Overall, dental offices that received PPP loans should carefully consider their eligibility for the ERTC and work with their accountants to maximize the benefits of both programs.

Professional Guidance and Assistance

While the Employee Retention Credit (ERC) can provide significant financial relief to dental practices, navigating the complex rules and regulations surrounding the credit can be challenging. Fortunately, dental CPAs, tax preparers, financial advisors, and accountants can provide professional guidance and assistance to help dental practices take full advantage of the credit.

Congress established the ERC as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act to help eligible employers, including dental practices, retain their employees during the pandemic. However, determining eligibility for the credit, calculating the credit amount, and claiming the credit on tax returns can be difficult.

Dental CPAs and tax preparers can analyze a dental practice’s financial situation and determine if it meets the eligibility requirements for the credit. They can also help calculate the credit amount and ensure that the credit is claimed correctly on tax returns. Additionally, dental CPAs and tax preparers can assist with amending previous tax returns to claim the credit if it was not previously claimed.

Financial advisors can guide how to best use the credit to improve the financial health of the dental practice. They can help dental practices determine if it is more beneficial to claim the credit immediately or carry it forward to future tax years.

Accountants can assist with record-keeping and documentation requirements related to the ERC. They can also guide how to properly allocate expenses to maximize the credit amount.

Overall, seeking professional guidance and assistance from dental CPAs, tax preparers, financial advisors, and accountants can help dental practices navigate the ERC rules and regulations and take full advantage of the credit.

Frequently Asked Questions

Are dental offices eligible for the Employee Retention Credit?

Yes, dental offices are eligible for the Employee Retention Credit (ERC) if they meet certain criteria. The ERC is a tax credit designed to encourage eligible businesses to retain their employees on the payroll during the COVID-19 pandemic. Dental offices can claim the credit if they meet the eligibility requirements.

What are the eligibility requirements for the Employee Retention Credit?

To be eligible for the ERC, dental offices must meet certain criteria. They must have experienced a full or partial suspension of operations due to a government order related to COVID-19 or have experienced a significant decline in gross receipts. Additionally, dental offices must have paid qualified wages to their employees during the eligible period.

How can dental offices claim the Employee Retention Credit?

Dental offices can claim the ERC by filing Form 941, Employer’s Quarterly Federal Tax Return, and Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. They can also claim the credit by reducing their federal employment tax deposits. Dental offices should consult with their tax advisor to determine the best method for claiming the ERC.

What is the maximum amount of the Employee Retention Credit for dental offices?

The maximum amount of the ERC for dental offices is $5,000 per employee from March 13 to December 31, 2020, and $7,000 per employee per quarter from January 1 to September 30, 2021. The credit is calculated based on qualified wages paid to employees during the eligible period.

What expenses can be covered by the Employee Retention Credit for dental offices?

The ERC can be used to cover qualified wages and certain health plan expenses paid to employees during the eligible period. Qualified wages include wages paid to employees who are not working due to the COVID-19 pandemic, as well as wages paid to employees who are working but experiencing a significant decline in gross receipts.

Are there any state-specific requirements for claiming the Employee Retention Credit for dental offices?

Some states may have their requirements for claiming the ERC. Dental offices should consult with their tax advisor to determine if there are any state-specific requirements for claiming the credit in their state.

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