Employee Retention Tax Credit for Physical Therapy Clinics: How to Maximize Your Savings

Physical therapy clinics are among the many businesses that have been affected by the COVID-19 pandemic. In response to the economic challenges faced by businesses, the US government introduced the Employee Retention Tax Credit (ERTC) in 2020. The ERTC is a cash refund through payroll tax that aims to encourage businesses to keep their employees on the payroll by providing relief. Physical therapy clinics are eligible for this credit, and it can provide much-needed financial support during these challenging times.

The ERTC is available to medical practices, including dental and hospital-affiliated practices, that meet specific criteria. The credit is calculated based on eligible wages and healthcare costs, with a maximum credit of $7,000 per employee per quarter or $28,000 for the entire year. For example, a physical therapy clinic with 50 employees could qualify for up to $1,650,000 of ERTC between 2020 and 2021.

Firstly, it is important to note that employers cannot double-dip and receive both PPP loan forgiveness and the ERC for the same wages. This means that if a clinic used PPP funds to pay employee wages, those wages cannot be used to calculate the ERC. However, if a clinic has wages that were not covered by PPP funds, they may still be eligible for the ERC.

Physical therapy clinics can use the ERTC to offset their payroll tax liabilities or receive a refund if the credit exceeds their payroll tax liabilities. The credit is available for the 2020 and 2021 tax years, and it has been extended through December 31, 2021. Physical therapy clinics should consult with their tax advisors to determine if they are eligible for the credit and how to claim it.

Understanding Employee Retention Credit

Employee Retention Credit (ERC) is a refundable tax credit that incentivizes businesses to retain their employees despite the economic effects of the COVID-19 pandemic. The ERC is available to businesses and tax-exempt organizations that had employees and were affected during the pandemic. It was introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 and has been extended several times since then.

ERC is a credit of up to $7,000 per employee every quarter, which can be claimed on the employer’s quarterly payroll tax return. The credit is available to businesses that have experienced a significant decline in gross receipts or were fully or partially suspended due to government orders related to COVID-19. Eligible businesses can claim the credit for wages paid between March 13, 2020, and December 31, 2022.

Physical therapy clinics, like many other medical practices, were affected by the pandemic and may be eligible for the ERC. Qualified hospital-affiliated medical or dental groups, including physical therapy clinics, are eligible for ERC if they meet certain criteria. These criteria include having experienced a significant decline in gross receipts, being fully or partially suspended due to government orders, or having a reduction in business operations due to social distancing guidelines.

It is important to note that ERC is a refundable tax credit, which means that businesses can receive a refund even if they owe no tax. Furthermore, ERC can be claimed in addition to other COVID-19 relief programs, such as the Paycheck Protection Program (PPP).

In summary, ERC is a refundable tax credit that incentivizes businesses to retain their employees during the COVID-19 pandemic. Physical therapy clinics, like many other medical practices, may be eligible for ERC if they meet certain criteria. The credit can be claimed in addition to other COVID-19 relief programs and is a valuable resource for businesses affected by the pandemic.

The Impact of COVID-19 on Physical Therapy Clinics

The Covid-19 pandemic has had a significant impact on physical therapy clinics across the United States. The government order to shut down businesses and capacity restrictions has led to a decline in patient volumes and revenue for many clinics.

Physical therapy clinics have had to adapt to the new reality of the pandemic by implementing new safety protocols to protect patients and staff. This has led to increased costs for personal protective equipment (PPE) and other supplies.

The government has recognized the impact of the pandemic on businesses, including physical therapy clinics, and has implemented measures to provide financial relief. One such measure is the Employee Retention Credit (ERC), which provides tax credits to eligible businesses that have been impacted by the pandemic.

Physical therapy clinics that have experienced a decline in revenue due to the pandemic may be eligible for the ERC. The credit is equal to 70% of eligible wages and healthcare costs up to $10,000 per employee per quarter, for a maximum credit of $28,000 per employee for the entire year.

Overall, the Covid-19 pandemic has presented significant challenges for physical therapy clinics. However, with government support and adaptation to new safety protocols, clinics can continue to provide essential services to patients in need.

Eligibility Criteria for ERC

To claim the Employee Retention Credit (ERC), a physical therapy clinic must meet certain eligibility criteria. The following are some of the key requirements that a clinic must fulfill to qualify for the credit:

Eligible Employers

Firstly, the clinic must be an eligible employer. This means that the clinic must have carried on a trade or business during the calendar year 2023, and must not be a government entity or a nonprofit organization.

Gross Receipts

The clinic must also have experienced a significant decline in gross receipts during the calendar quarter in which the ERC is claimed. Specifically, the gross receipts for the quarter must be less than 80% of the gross receipts for the same calendar quarter in 2022.

Full-Time Employee

The clinic must have at least one full-time employee during the calendar quarter for which the ERC is claimed. A full-time employee is an employee who works an average of at least 30 hours per week.

Partial Suspension

The clinic must have experienced a partial suspension of operations due to a government order related to COVID-19 or must have experienced a significant decline in gross receipts.

Reduction in Gross Receipts

The clinic must have experienced a reduction in gross receipts of at least 20% when compared to the same calendar quarter in 2022.

Gross Receipts Test

Finally, the clinic must pass the gross receipts test. This test is used to determine whether the clinic has experienced a significant decline in gross receipts. To pass the test, the clinic’s gross receipts for the current calendar quarter must be less than 80% of the gross receipts for the same calendar quarter in 2022.

If a physical therapy clinic meets all of the above eligibility criteria, it may be able to claim the ERC. It is important to note that the eligibility criteria for the ERC may change over time, so clinics should stay up to date with the latest guidance from the IRS.

Role of the IRS and Relevant Legislation

The Employee Retention Credit (ERC) is a tax credit designed to help businesses and tax-exempt organizations that were affected by the COVID-19 pandemic. The IRS has played a crucial role in implementing and overseeing the ERC.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, first introduced the ERC. The Consolidated Appropriations Act (CAA) passed in December 2020, extended and expanded the ERC, and the American Rescue Plan Act of 2021 (ARPA) further expanded and extended the ERC.

The IRS provided guidance for employers claiming the ERC for the first two quarters of 2021 in Revenue Procedure 2021-33. The guidance clarifies the eligibility requirements and how to calculate the credit.

The IRS also issued several FAQs to help businesses and tax-exempt organizations understand the ERC. The FAQs cover topics such as eligibility requirements, how to calculate the credit, and how to claim the credit.

Congress has made several changes to the ERC, and the IRS has updated its guidance accordingly. For example, the ARPA made changes to the ERC for the third and fourth quarters of 2021, including allowing certain start-up businesses to claim the credit.

Overall, the IRS has been instrumental in implementing and overseeing the ERC, and businesses and tax-exempt organizations should consult the IRS’s guidance and FAQs when claiming the credit.

Interaction Between ERC and Paycheck Protection Program

Physical therapy clinics that have received Paycheck Protection Program (PPP) loans may also be eligible for the Employee Retention Credit (ERC). However, there are some important considerations to keep in mind when it comes to the interaction between these two programs.

It is also important to note that the ERC can be claimed for wages paid between March 12, 2020, and December 31, 2021. This means that clinics may be able to claim the ERC for wages paid before they received their PPP loan, or for wages paid after the PPP funds were exhausted.

Clinics that received PPP loans in 2020 should also be aware that the Consolidated Appropriations Act of 2021 made changes to the ERC that may make it more beneficial for them to claim the credit in 2021. Specifically, the Act increased the amount of the credit from 50% to 70% of qualified wages and increased the maximum credit per employee from $5,000 to $7,000 per quarter.

Overall, clinics that have received PPP loans should carefully consider their eligibility for the ERC and whether it makes sense to claim the credit. It may be beneficial to consult with a tax professional to determine the best course of action.

How to Calculate and Claim ERC

To calculate and claim the Employee Retention Credit (ERC) for physical therapy clinics, businesses must determine their eligibility and qualified wages. The ERC is a refundable payroll tax credit for businesses affected by the COVID-19 pandemic that retained employees.

To calculate the ERC, businesses can use Form 941, Employer’s Quarterly Federal Tax Return. The credit is claimed on Form 941 for the calendar quarter in which the qualified wages were paid. If the ERC exceeds the employer’s share of Social Security tax for the quarter, the excess credit is refundable.

Businesses can also request an advance payment of the ERC by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The advance payment can be up to 70% of the anticipated credit for the quarter.

If a business has already filed Form 941 and wants to claim the ERC for a previous quarter, they can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return, or Claim for Refund. The business can also claim the ERC on their adjusted return if they have not yet filed Form 941 for the quarter.

To claim the ERC, businesses must complete Form 941, line 11c, with the amount of the credit. The business must also report the credit on their federal income tax return for the year.

It is important to note that businesses cannot claim the ERC for the same wages used to calculate the Paycheck Protection Program (PPP) loan forgiveness. Businesses must choose to either claim the ERC or apply for PPP loan forgiveness for the same wages.

In summary, businesses can calculate and claim the ERC using Form 941 and Form 7200. They can also claim the credit on their adjusted return or federal income tax return. Businesses cannot claim the ERC for the same wages used for PPP loan forgiveness.

ERC and Full-Time Employees

The Employee Retention Credit (ERC) is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. Full-time employees play a crucial role in determining the eligibility of a business for the ERC.

To qualify for the ERC, a business must have experienced a significant decline in gross receipts or been fully or partially suspended due to government orders. Additionally, the business must have paid qualified wages to its employees, which include full-time employees.

A full-time employee, with respect to any 2019 calendar month, is an employee who worked either an average of at least 30 hours per week or 130 hours per month. Businesses must report the number of full-time employees on their employment tax returns.

The ERC allows businesses to claim a credit against their share of Social Security tax equal to 70% of the qualified wages paid to each employee, up to a maximum of $10,000 per employee per quarter. This means that the maximum credit available per employee is $7,000 per quarter or $28,000 for the entire year.

Businesses that claim the ERC must reduce their payroll taxes by the amount of the credit claimed. Any excess credit that cannot be used to offset payroll taxes can be refunded to the business.

In conclusion, full-time employees are an important factor in determining a business’s eligibility for the ERC. Businesses must report the number of full-time employees on their employment tax returns and pay qualified wages to these employees to claim the ERC.

Special Considerations for Medical and Dental Practices

Medical and dental practices have special considerations when it comes to the Employee Retention Credit (ERC). To qualify for the ERC, medical and dental practices must have been affected by government orders imposing partial shutdowns on office activities, precluding access to hospitals, or limiting the ability to perform elective procedures.

A medical practice will qualify for the ERC if its gross receipts are more than 20% lower in the first, second, and third quarters of 2021 than the gross receipts in the calendar quarter of 2019. The decline criteria for 2020 is difficult to meet since it is required to show a 50% reduction.

Dental practices are eligible for the ERC if they meet the same criteria as medical practices. Eligible dental practices can claim the credit on wages paid between March 13, 2020, and December 31, 2020, for a maximum credit of up to $5,000 per employee. Additionally, eligible dental practices can claim the credit on wages paid between January 1, 2021, and September 30, 2021, for a maximum credit of up to $7,000 per quarter and per employee.

Hospital-affiliated organizations, including those owned through private equity, are also eligible for the ERC if they meet the criteria. Hospitals themselves may not qualify for the ERC, but hospital-affiliated organizations may be eligible if they meet the criteria.

For medical and dental practices, the waiting room is an important consideration. If the waiting room is closed due to government orders, this may qualify the practice for the ERC. However, if the waiting room is simply closed due to the practice’s own decision, this would not qualify for the ERC.

Overall, medical and dental practices must carefully consider their eligibility for the ERC and ensure that they meet the criteria before claiming the credit.

Additional Financial Support and Tax Benefits

Physical therapy clinics may be eligible for additional financial support and tax benefits to help with the impacts of the COVID-19 pandemic. One such benefit is the Employee Retention Tax Credit (ERTC), which provides a refundable tax credit for eligible employers who retain their employees during the pandemic. The ERTC is available to both for-profit and tax-exempt organizations, including physical therapy clinics.

In addition to the ERTC, physical therapy clinics may also be eligible for other tax credits and deductions related to payroll costs. These tax benefits can help clinics reduce their tax liability and provide much-needed funding during this challenging time.

Another cash benefit available to physical therapy clinics is the Restaurant Revitalization Grant, which provides funding to eligible restaurants and other food and beverage businesses. While this grant is not specifically designed for physical therapy clinics, it may be available to clinics that operate a cafe or other food and beverage service as part of their business.

Finally, physical therapy clinics may also be eligible for the Shuttered Venue Operators Grant, which provides funding to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, and motion picture theater operators. While this grant is not specifically designed for physical therapy clinics, it may be available to clinics that operate a live performance or entertainment venue as part of their business.

Overall, physical therapy clinics should explore all available financial support and tax benefits to help weather the impacts of the pandemic. By taking advantage of these programs, clinics can continue to provide essential healthcare services to their patients while also maintaining financial stability.

The Future of ERC and Recovery Startup Business

The ERC has been a lifeline for many businesses during the pandemic, including physical therapy clinics. In 2020, eligible employers could claim a refundable tax credit of up to 50% of qualified wages paid to employees between March 12th and December 31st, with a maximum credit amount of $5,000 per employee. For businesses claiming ERC in 2021, however, several changes have been implemented. The maximum tax credit percentage has increased from 50% to 70%, and the maximum credit amount has increased from $5,000 to $7,000 per employee per quarter.

Recovery startup businesses, which are defined as businesses that began operations on or after February 15, 2020, and have average annual gross receipts that do not exceed $1 million, can also claim ERC. These businesses can only claim a maximum of $50,000 per quarter, regardless of how much they have paid in qualifying wages. This means that recovery startup businesses can claim up to $100,000 in tax refunds from the IRS later.

Interest in the ERC has been high, and many businesses have been taking advantage of this tax credit. However, the future of the ERC is uncertain. The ERC was originally set to expire on December 31, 2020, but it was extended through June 30, 2021. It was then extended again through December 31, 2021. It is unclear whether the ERC will be extended again or if it will be allowed to expire.

In conclusion, the ERC has been a valuable resource for physical therapy clinics and other businesses during the pandemic. Recovery startup businesses can also take advantage of this tax credit. However, the future of the ERC is uncertain, and businesses should stay up-to-date on any changes to this tax credit.

Frequently Asked Questions

Do physical therapy clinics qualify for the employee retention credit?

Yes, physical therapy clinics can qualify for the Employee Retention Credit (ERC). According to the IRS, eligible employers include those who experienced a full or partial suspension of operations due to a government order related to COVID-19 or had a significant decline in gross receipts.

What are the eligibility requirements for the employee retention credit in healthcare?

To be eligible for the ERC, healthcare providers, including physical therapy clinics, must have experienced a significant decline in gross receipts. The decline must be greater than 20% in any quarter of 2020 or 2021 when compared to the same quarter in 2019. Alternatively, the clinic can qualify if it experienced a full or partial suspension of operations due to a government order related to COVID-19.

How much is the employee retention credit for healthcare providers?

The ERC for healthcare providers, including physical therapy clinics, is up to 70% of qualified wages paid to each employee, up to $10,000 per employee per quarter. The maximum credit available per employee is $28,000 for 2021.

What are the conditions that disqualify a physical therapy clinic from the employee retention credit?

Physical therapy clinics are not eligible for the ERC if they receive a Paycheck Protection Program (PPP) loan. Additionally, if the clinic’s gross receipts have returned to pre-pandemic levels, they are no longer eligible for the credit.

Can dental offices claim the employee retention credit?

Yes, dental offices can claim the ERC if they meet the eligibility requirements. They must have experienced a significant decline in gross receipts or a full or partial suspension of operations due to a government order related to COVID-19.

What is the deadline for claiming the employee retention credit for physical therapy clinics?

The deadline for claiming the ERC for physical therapy clinics is the due date of the employer’s employment tax return, including extensions, for the period that includes the last day of the qualified quarter. For example, to claim the credit for the third quarter of 2023, the employer must file its employment tax return by January 31, 2024.

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