The Employee Retention Credit (ERC) in the CARES Act of March 2020 was far less heralded than the law’s Payroll Protection Program (PPP). Justifiably so, because if you received a PPP loan, you were not eligible to take the tax credit. And while the ERC payroll tax credit was an attractive option, the PPP loan held greater appeal as it allowed recipients to offset up to 100 percent of qualifying payroll and non-payroll expenses compared to a credit of 50 percent of qualifying wages paid in 2020 up to $10,000 per employee.
But an enhanced scope for the employee retention credit is now in play. With the passage of the Consolidated Appropriations Act, 2021, signed into law at the end of 2020, PPP borrowers, including healthcare organizations, are no longer excluded from the benefits of the ERC and may now qualify for the ERC benefits.
Here’s how it works:
- The ERC is a fully refundable tax “credit” against an employer’s payroll tax liability or obligation. For 2020, the credit is 50 percent of up to $10,000 of wages per employee, including healthcare costs for some borrowers. In essence, this would generate a maximum of $5,000 credit per employee.
- For 2021, the credit has been increased to 70 percent of up to $10,000 of wages for each employee for each of the first two quarters of the year, resulting in a maximum credit of $14,000 per employee.
An organization or practice must meet one of two requirements to qualify for the credit:
- For 2020, a decline in gross revenue of 50 percent or more in any quarter relative to the same quarter in 2019, or,
- A full or partial suspension or shutdown of the business at some point by government mandate or order.
- As opposed to the 50 percent threshold for 2020, note, for the first two quarters of 2021, the 2021 threshold is a 20 percent decline in gross revenue as compared to the same quarter in 2019. While less likely this year, a full or partial suspension or shutdown of the business at some point by government mandate in the first two quarters would also qualify the organization for the ERC.
While many practices in 2020 may not have met the 50 percent decline requirement, many were restricted from performing elective procedures during at least part of the year, which would qualify them under the second requirement. The period for determining the amount of the credit would vary based on your respective state, but essentially would be the period of time providers were limited in performing elective procedures under state mandates or order. For example, Florida practices, hospitals, and facilities were prohibited from performing elective procedures from March 20 through May 4, 2020, so the qualifying wages would correspond to the amounts paid for that same period.
There is a caveat. If wages are used for the tax credit, those wages must be excluded from the calculations for loan forgiveness by a PPP borrower. If your organization has not yet confirmed forgiveness, or you are in the process of working with your financial institution for forgiveness, allocating wages for the ERC while preserving full PPP loan forgiveness will be key to maximizing the benefits of both relief measures. In addition, by including eligible non-payroll costs with the PPP loan forgiveness, an organization may be eligible for the credit and still earn 100 percent PPP loan forgiveness. The IRS has indicated they will issue additional guidance, which may provide further clarity on using the ERC and PPP together.
If an organization is an eligible employer, qualified wages for the 2020 ERC are determined by the entity’s number of full-time employees. Employers with 100 or fewer full-time employees can include all wages and healthcare costs paid during the eligible period. Employers with more than 100 full-time employees can include wages paid to employees who are not providing services during the eligible period. For the 2021 ERC, the employee threshold increases from 100 to 500. Eligible employers with 500 or fewer full-time employees can include all wages and healthcare costs paid during the first and second quarter of 2021 as eligible wages.
To determine how to qualify for the ERC, or for more information, contact Michael DeLuca, HBK Healthcare Solutions, at 239-482-5522, or by email at firstname.lastname@example.org. held greater appeal as it allowed recipients to offset up to 100 percent of qualifying payroll and non-payroll expenses compared to a credit of 50 percent of qualifying wages up to $10,000 per employee.