Employee Retention Tax Credit for Pharmacies: What You Need to Know

Employee retention tax credit is a tax incentive that is available to businesses in various industries, including pharmacies. This tax credit is designed to encourage businesses to retain their employees during difficult times, such as the COVID-19 pandemic. Pharmacies, like other businesses, have been impacted by the pandemic and have had to adapt to new regulations and changes in consumer behavior.

The employee retention tax credit for pharmacies can provide significant financial relief for businesses that have experienced a decline in revenue due to the pandemic. Pharmacies that have experienced a decline in revenue of at least 20% in a quarter compared to the same quarter in 2019 may be eligible for the tax credit. The tax credit is equal to 50% of qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter.

To claim the employee retention tax credit, pharmacies must file Form 941, Employer’s Quarterly Federal Tax Return, and include the tax credit on their payroll tax return. Pharmacies can also apply for an advance payment of the tax credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. It is important for pharmacies to consult with a tax professional to ensure that they are eligible for the tax credit and to properly calculate and claim the credit on their tax returns.

Understanding Employee Retention Tax Credit

The Employee Retention Credit (ERC) is a refundable tax credit for eligible employers that helps them keep employees on the payroll during the COVID-19 pandemic. The ERC was introduced as part of the CARES Act in March 2020 and has since been expanded and modified by subsequent legislation.

To be eligible for the ERC, an employer 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. The requirements for eligibility differ depending on the time period for which the credit is claimed.

Qualified wages are the wages and compensation paid to employees during the period of eligibility. The amount of the credit is 70% of qualified wages up to $10,000 per employee per quarter. The credit is claimed on the employer’s federal employment tax return, and any excess credit is refundable.

The ERC is a refundable tax credit, which means that if the amount of the credit exceeds the employer’s share of Social Security tax liability, the excess credit is refunded to the employer.

The IRS provides guidance for employers claiming the ERC under the CARES Act modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Employers must file Form 941, Employer’s Quarterly Federal Tax Return, to claim the credit. The IRS has also provided a FAQ page to answer common questions about the ERC.

In conclusion, the ERC is a valuable tax credit for eligible employers that helps them keep employees on the payroll during the COVID-19 pandemic. Employers should consult with their tax advisor or CPA to determine their eligibility and to claim the credit.

ERC Eligibility Criteria for Pharmacies

To be eligible for the Employee Retention Tax Credit (ERTC), pharmacies must meet certain requirements set by the Internal Revenue Service (IRS). The ERTC is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. Pharmacies can claim the credit for wages paid to employees during eligible quarters.

Eligibility Requirements

Pharmacies are eligible for the ERTC if they meet one of the following criteria:

  • Gross receipts test: The pharmacy’s gross receipts for a calendar quarter are less than 80% of its gross receipts for the same calendar quarter in 2019.
  • Government order test: The pharmacy’s operations are fully or partially suspended due to a government order related to COVID-19.
  • Decline in gross receipts test: The pharmacy’s gross receipts for a calendar quarter are less than 50% of its gross receipts for the same calendar quarter in 2019. The eligibility ends when gross receipts for a calendar quarter exceed 80% of gross receipts for the same calendar quarter in 2019.

Partial Shutdown

Pharmacies that have experienced a partial shutdown due to government orders related to COVID-19 may still be eligible for the ERTC. A partial shutdown means that the pharmacy is unable to operate at full capacity due to government orders. Pharmacies that have experienced a partial shutdown are eligible for the ERTC for wages paid during the period of the partial shutdown.

Gross Receipts Test

Pharmacies that meet the gross receipts test are eligible for the ERTC for wages paid during the quarter in which the gross receipts test was met and the following quarter. The gross receipts test is met if the pharmacy’s gross receipts for a calendar quarter are less than 80% of its gross receipts for the same calendar quarter in 2019.

Drop in Gross Receipts

Pharmacies that experience a drop in gross receipts of 20% or more compared to the same quarter in 2019 are eligible for the ERTC. The ERTC is available for wages paid during the quarter in which the gross receipts test was met and the following quarter.

In summary, pharmacies can claim the ERTC for wages paid to employees during eligible quarters if they meet the gross receipts test, government order test, or decline in gross receipts test. Pharmacies that have experienced a partial shutdown due to government orders related to COVID-19 may also be eligible for the ERTC. It is important for pharmacies to keep thorough records that show wages paid, gross receipts, government orders, and other required documents to claim the credit.

Claiming the ERC

To claim the Employee Retention Tax Credit (ERC), eligible taxpayers must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, for the relevant calendar quarter. Taxpayers can also file an amended income tax return for the relevant tax period to claim the ERC.

The IRS has provided guidance on how taxpayers can claim the ERC on their adjusted employment tax returns. Taxpayers can claim the credit on Form 941-X for the relevant calendar quarter. If the taxpayer has already filed the original Form 941 for the quarter, they must file Form 941-X to claim the ERC. Taxpayers can also claim the ERC on an amended income tax return for the relevant tax period.

If the taxpayer has already claimed the ERC on their original Form 941 and needs to make an adjustment, they can file Form 941-X to make the necessary changes. Taxpayers must also attach a statement to their Form 941-X explaining the reason for the adjustment.

If the taxpayer needs to withdraw their ERC claim, they can do so by filing Form 941-X and checking the “Void” box at the top of the form. Taxpayers must also provide an explanation for the voided claim.

Taxpayers can file their Form 941-X electronically or by mail. If filing by mail, taxpayers should send their form to the address listed in the instructions for Form 941-X.

It’s important to note that taxpayers cannot claim a deduction for wages paid with the ERC and also claim the same wages as a deduction on their income tax return. Taxpayers must reduce their deduction for wages by the amount of the ERC claimed.

Overall, taxpayers who are eligible for the ERC should be confident in their ability to claim the credit by following the IRS guidance and filing the necessary forms.

Interaction of ERC with Other Relief Measures

The Employee Retention Tax Credit (ERTC) is a refundable payroll tax credit that was established to encourage employers to retain employees during the COVID-19 pandemic. It is important to note that the ERTC can be taken in addition to any other relief measures that the employer may have received, such as a PPP loan or an advance payment from the IRS.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, employers who received a PPP loan were not eligible to claim the ERTC. However, this restriction was removed by the Consolidated Appropriations Act (CAA), which allows employers to claim both the PPP loan forgiveness and the ERTC, as long as the same wages are not used for both.

Tax-exempt organizations are also eligible for the ERTC. However, the credit is limited to the organization’s share of the Social Security tax on its payroll. In addition, the ERTC is not available to state and local governments and their instrumentalities, nor is it available to small businesses that receive a Shuttered Venue Operators Grant.

It is important to note that the ERTC is based on qualified wages, which include wages paid to employees during the pandemic. However, the wages used to calculate the ERTC cannot be used for any other tax credit, such as the Work Opportunity Tax Credit or the Research and Development Tax Credit.

In summary, the ERTC can be taken in addition to other relief measures, such as a PPP loan or an advance payment from the IRS. Tax-exempt organizations are also eligible for the credit, but the credit is limited to the organization’s share of the Social Security tax on its payroll. Employers should be careful not to use the same wages to calculate both the PPP loan forgiveness and the ERTC and should ensure that the wages used to calculate the ERTC are not used for any other tax credit.

Recent Updates and Changes in ERC

The Employee Retention Credit (ERC) is a refundable tax credit that eligible employers can claim on qualified wages paid to employees. It was first introduced in 2020 as a response to the COVID-19 pandemic and has undergone several updates and changes since then.

In 2020, eligible employers could claim a maximum credit of $5,000 per employee. However, the Consolidated Appropriations Act, of 2021, increased the credit to $7,000 per employee for the first two quarters of 2021. The credit is available to eligible employers who experienced a significant decline in gross receipts or were subject to a full or partial suspension of operations due to a government order.

Notice 2021-20 provided guidance on the ERC for 2020, while Notice 2021-23 provided guidance on the ERC for the first two quarters of 2021. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the Relief Act made several changes to the ERC, including allowing employers who received a Paycheck Protection Program loan to claim the credit.

The American Rescue Plan Act of 2021 made further changes to the ERC, including expanding eligibility to new employers and increasing the credit amount to $28,000 per employee for the third and fourth quarters of 2021.

Notice 2021-49 provided guidance on the ERC for the third and fourth quarters of 2021, including rules for claiming the credit for recovery startup businesses and how to calculate the credit for seasonal employers.

The IRS has also announced a moratorium on processing new ERC claims through the end of 2023 to prevent abuse and protect businesses from predatory tactics. Employers can still claim the credit for eligible wages paid prior to the moratorium.

Overall, the ERC has undergone several updates and changes since its introduction in 2020. Employers should consult the relevant guidance and seek professional advice to determine their eligibility and claim the credit accurately.

Special Considerations for Startup Pharmacies

Startup pharmacies have special considerations when it comes to claiming the Employee Retention Tax Credit (ERTC). The ERTC is a refundable tax credit that helps small employers keep their employees on payroll during the COVID-19 pandemic.

According to Sykes & Company, P.A., if a startup pharmacy has less than $1 million in gross receipts and starts after February 15, 2020, it can claim up to $100,000 from the ERTC. However, the pharmacy must have employees to be eligible for the credit. The credit is calculated based on the number of employees and is capped at $50,000 per quarter.

To claim the ERTC, startup pharmacies must also keep track of their gross receipts and ensure they do not exceed the $1 million annual revenue limit for the tax years 2020 and 2021. If the pharmacy exceeds this limit, it will not be eligible for the credit.

Startup pharmacies that are recovery startup businesses may also be eligible for the ERTC. According to Moskowitz LLP, recovery startup businesses can claim up to $7,000 per worker, per quarter, with a maximum of $50,000 for the year’s final two quarters. To maximize the credit, recovery startup businesses should keep close track of their gross receipts and ensure they do not exceed the $1 million annual revenue limit for the tax years 2020 and 2021.

Qualified health plan expenses can also be included in the ERTC calculation for startup pharmacies. Employment taxes, including federal income tax withheld and the employee’s share of Social Security and Medicare taxes, can also be included in the calculation.

It is important for startup pharmacies to seek advice from a pharmacy CPA to ensure they are properly claiming the ERTC and complying with Internal Revenue Service (IRS) guidelines.

Frequently Asked Questions

What is the Employee Retention Credit and how does it work?

The Employee Retention Credit (ERC) is a refundable tax credit designed to encourage businesses and tax-exempt organizations to keep their employees on payroll during the COVID-19 pandemic. The ERC is available to eligible employers who retained employees despite experiencing a significant decline in gross receipts or a full or partial suspension of business operations due to a government order.

What are the requirements for employers to be eligible for the Employee Retention Credit?

To be eligible for the ERC, an employer must meet certain requirements, including:

  • Experiencing a significant decline in gross receipts or a full or partial suspension of business operations due to a government order
  • Having operations in the United States
  • Paying qualified wages to eligible employees during the applicable period

What is the maximum amount of the Employee Retention Credit?

The maximum amount of the ERC is $7,000 per employee per quarter for wages paid from January 1, 2021, to December 31, 2021. The maximum credit amount per employee for wages paid from March 13, 2020, to December 31, 2020, is $5,000.

What is Form 941 and how is it used to claim the Employee Retention Credit?

Form 941 is the employer’s quarterly federal tax return. Employers can claim the ERC on Form 941 by reporting the credit on line 11c and reducing their deposits or requesting a refund on line 13d. Employers can also use Form 7200, Advance Payment of Employer Credits Due to COVID-19, to request an advance payment of the ERC.

Can an employer amend their income tax return to claim the Employee Retention Credit?

Yes, an employer can amend their income tax return to claim the ERC for a previous quarter if they were eligible but did not claim the credit on their original return.

What are some common disqualifiers for the Employee Retention Credit?

Some common disqualifiers for the ERC include:

  • Receiving a Paycheck Protection Program (PPP) loan and using the loan proceeds for certain expenses
  • Having more than 500 full-time employees
  • Claiming the Work Opportunity Tax Credit for the same employee wages

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