Leveraging Relief: Employee Retention Credit For The Healthcare Industry

The COVID-19 pandemic placed immense strain on healthcare providers. High patient volumes were accompanied by reduced revenue from delayed elective procedures. The Employee Retention Tax Credit provides crucial relief, enabling healthcare employers to defray labor costs for retaining staff through pandemic disruptions. This article explores how hospitals, physician practices, nursing facilities, home health agencies, and other healthcare providers can qualify and claim these valuable credits.

Overview of the Employee Retention Tax Credit

The Employee Retention Credit (ERC) is a refundable payroll tax credit that was introduced in the CARES Act and extended through 2021. It rewards employers for keeping employees on payroll during COVID-19 economic challenges. Key provisions include:

  • 50% credit on up to $10,000 of eligible wages per employee for 2020. Expands to 70% of up to $10,000 per quarter in 2021.
  • Applies to qualified wages paid from March 13, 2020, through December 31, 2021.
  • Eligibility requires a gross receipts decline of over 20% compared to the same quarter in 2019.
  • Refundable credit claimed against employer portion of payroll taxes. Excess credits get refunded.

Healthcare providers impacted by COVID-19 disruptions can leverage this credit to offset employee retention costs.

Qualifying Healthcare Organizations

A broad range of healthcare entities are eligible for the credit, including:

  • Hospitals
  • Physician practices
  • Dentists
  • Nursing facilities
  • Long-term care centers
  • Home health agencies
  • Other medical practitioners

Both nonprofit and for-profit healthcare providers can claim the ERC. The only exception is entities receiving Medicaid grants or assistance, which are prohibited from claiming the credit.

Qualifying Based on Suspensions or Reduced Business

Healthcare organizations can qualify for the Employee Retention Credit for the healthcare industry in two main ways:

  1. Full or partial suspension of operations during any 2020 or 2021 quarter due to governmental COVID-19 restrictions.
  2. Experiencing a significant decline in gross receipts, defined as:
  • A decrease of more than 20% in the 2020 quarter compared to the same 2019 quarter.
  • Reduction of over 20% in the 2021 quarter versus the same 2019 quarter.

Many healthcare providers qualify based on temporary COVID-19 shutdowns of elective procedures, reduced patient volumes, or revenue declines as non-urgent care was deferred.

Industry-Specific Eligibility Considerations

Certain nuances related to COVID-19 impacts on healthcare services warrant consideration when determining ERC eligibility:

  • Suspensions of elective surgeries, procedures, and preventative care services often qualify for credits.
  • Patient volumes at physician offices and dental clinics frequently declined, causing business reductions.
  • Nursing facilities and long-term care centers commonly experienced COVID-19 outbreaks that suspended operations.
  • Home health agencies may have suspended services to vulnerable seniors to avoid infection risks.
  • Reduced elective healthcare lowered revenues but increased COVID-19 patient costs, a dual impact that allows credit eligibility.
  • Telehealth provision grew dramatically but did not usually fully offset patient volume declines and revenue reductions from deferred services.

Assessing COVID-19 Impacts

Healthcare entities should assess total COVID-19 impacts across their entire organization to identify suspension periods and quantify revenue declines:

  • Consider shutdowns to any services due to COVID-19, even if partial or intermittent. All suspensions can contribute to eligibility.
  • Review patient volumes and healthcare revenue data across all departments, locations, and services to determine gross receipts declines. Look at total organizational revenues, not just department-level trends.
  • Compare gross receipts from the 2020 and 2021 quarters to the same periods in 2019 to identify declines exceeding 20%.
  • Account for increased COVID-19 costs and lost revenues together since higher expenses do not negate lost business.
  • Analyze revenue and volume trends for the entire quarterly period, not just a single month.

Full analysis of organizational-wide COVID-19 impacts enables maximizing credit potential.

Claiming the Credit

Qualifying healthcare employers claim the ERC on IRS Form 941 employer payroll tax returns. Key steps include:

  • Reporting qualified wage amounts paid to employees during eligible quarters on Form 941.
  • Applying credit amounts to offset employer payroll tax liabilities for that quarter.
  • Requesting advance payment from the IRS on Form 7200 for any credits exceeding taxes due for the period.
  • Reconciling any advance credits received on subsequent Form 941 filings.
  • Amending prior 941s to claim newly qualified credits from preceding quarters.

Certifying eligibility and credit amounts on Form 941 and maintaining detailed supporting calculations and documentation is critical.

Qualified Wage Rules

Complex rules govern what wages qualify when determining the ERC amount:

  • For employers with over 100 full-time employees, credits only apply to wages paid to staff not providing services.
  • Small employers (100 or fewer full-time staff) can claim credits on wages paid to all employees, even for hours worked.
  • Credit-eligible wages exclude amounts over $10,000 for any one employee for a quarter.
  • Qualified wages include certain allocable healthcare expenses.

Complying with qualified wage requirements merits careful review by healthcare entities.

Maximizing the Credit

Healthcare providers can take proactive steps to leverage the maximum allowable ERC benefit:

  • Thoroughly evaluate COVID-19 impacts across the entire organization to identify all eligible quarters.
  • Correctly determine if qualified wage rules for large or small employers apply.
  • Calculate qualified wages accurately based on suspensions, hours worked, and compensation limits.
  • Claim credits on Form 941 promptly for all eligible quarters.
  • Amend prior Form 941s to claim newly qualified credits from preceding periods.
  • Prevent claiming duplicate credits for wages also covered by PPP loan forgiveness.

With proper compliance and planning, the ERC can provide substantial assistance with employee costs to aid healthcare providers in COVID-19 recovery.

Employee Retention Credit for the healthcare industry – Conclusion

The pandemic dealt immense operational and financial blows to healthcare providers. The Employee Retention Tax Credit offers critical relief by subsidizing labor costs for retaining staff throughout disruptions. Healthcare entities that experienced material COVID-19 impacts should evaluate conditions, quantify reductions, identify suspensions, determine qualified wages, and claim available credits to take full advantage of this valuable program. With careful compliance, healthcare employers can obtain major financial assistance toward pandemic recovery efforts.

Frequently Asked Questions

Q: Which healthcare providers qualify for the ERC?

A: Hospitals, physician practices, nursing facilities, dental clinics, home health agencies, and most medical practitioners are eligible. Medicaid-funded entities cannot claim the credit.

Q: How do healthcare providers qualify for the ERC?

A: Healthcare organizations qualify by experiencing full or partial suspensions of operations due to COVID-19, or by meeting gross receipts decline thresholds compared to 2019 quarters.

Q: What healthcare services support qualifying for the credit?

A: Suspensions of elective procedures, reduced patient volumes, lower revenues from delayed preventative care, and decreased business across departments can contribute to eligibility.

Q: How are qualified wages determined for healthcare providers?

A: Rules differ based on number of full-time employees. Large employers can only claim wages paid to non-working staff, while small employers can claim wages paid to all employees during suspensions or declines.

Q: How do healthcare employers claim the credit?

A: Qualified wages and health expenses are reported on Form 941 payroll tax returns either quarterly or via amended returns. Credits are applied to offset payroll taxes, and any excess credits are refunded.

Helpful Resources

  • IRS Instructions for Form 941 – Claiming ERC
  • IRS FAQs on Employee Retention Credit
  • AICPA COVID-19 Employer Resources Hub
  • Guide to Substantiating and Documenting Credits (U.S. Chamber)
  • Healthcare Associations Guidance on Pandemic Relief

Consult a tax advisor on qualifying, documenting, and claiming credits specific to COVID-19 healthcare business impacts.


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