Key Tax Matters for Long-Term Care Facilities

The year 2020 might be behind us, but the pandemic rages on, as does the burst of stimulus-boosting legislation aimed at assisting businesses, including and sometimes specifically for long-term care facilities. As we take a deep breath and let the dust settle, consider these four elements when preparing and planning for upcoming tax reporting:

  1. PPP: rounds one and two. Facilities that received the Paycheck Protection Program (PPP) loans in 2020 and have not yet applied for loan forgiveness should consider the best timing to apply for forgiveness, based on their individual situation. For Borrowers with loans up to $150,000, filing for forgiveness should be less cumbersome, due to the revised 3508S application; however, Borrowers, should carefully review the application requirements and watch for their lenders to update their PPP forgiveness portals to accommodate the revisions.

    To qualify for a second round Payment Protection Program loan, you must have received and used—or will use—the funds from a first-round loan. As well, the business must have no more than 300 employees, down from 500 for the first round, and have gross receipts in any 2020 quarter of at least 25 percent less than the corresponding 2019 quarter. We still await potential further guidance on how funds received from other programs, like the Health and Human Services Provider Relief Fund, will affect your ability to qualify for a second PPP loan, but we are advising facilities that may have suffered a 25 percent decrease in receipts in a 2020 quarter to reach out to your professional advisor for guidance.

    Most notably with the passage of the Consolidated Appropriations Act (CAA), expenses incurred on forgiven amounts are now tax-deductible.

  2. HHS Provider Relief Funds. During 2020, most facilities received an HHS Provider Relief Fund (PRF) payment through one or more of the agency’s General Distribution phases. Now, facilities are required to submit a report on how those funds were used. Facilities will need to substantiate how the PRF they received covered increased expenditures attributable to the coronavirus and related lost revenues during 2020. Funds reimbursed by other sources, such as the PPP, cannot be used when reporting the usage of the HHS PRF. If a facility received a payment, or combined payments, more than $10,000, the facility must submit the initial report covering the 2020 year through the HHS portal. The portal was set to be open between January 15 and February 15, 2021, but has since been postponed absent of guidance on an opening date. Facilities expending more than $750,000 in federal financial assistance during their fiscal year should plan to receive a single audit and begin contacting a qualified CPA to ensure they can meet the required reporting.

    Note that the funds are considered taxable income. Providers receiving the funds will be issued 1099-MISC for 2020.

  3. Work Opportunity Tax Credit. The Work Opportunity Tax Credit (WOTC) was created in 1996 to allow for-profit employers to claim a tax credit against their federal income tax liabilities for hiring members of certain groups who have historically faced significant hurdles to employment. The CAA extends this credit through December 31, 2025.

    To take full advantage of the WOTC, it is necessary that facilities not “double-dip” on expenditures when supporting for other sources or tax credits, such as the PPP forgiveness or the Employer Retention Credit. Entities should consult with your professional advisor to maximize available tax credits, while remaining compliant with other reporting requirements.

  4. Employee Retention Credit. The Employer Retention Credit (ERC) was created in 2020 by the CARES Act to encourage employers to keep employees on the payroll and continue offering health benefits during the coronavirus pandemic. The ERC is a 50 percent refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees between March 12 and December 31. The program was extended through June 30, 2021, with a 70 refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees per quarter. Employer eligibility is achieved when the entity’s operations are suspended through governmental orders or there is a significant decline in gross receipts, which is assessed on a quarterly basis (current year vs. 2019). Significant declines are defined as 50 percent or more for 2020 and 20 percent or more for 2021.

    While long-term care facilities did not, by and large, face governmental shutdowns, some may have found light in the second eligibility criteria. Standard turnover, coupled with fewer elective surgeries, which ravaged the skilled nursing sector, and families hesitating to move loved ones into assisted and independent living communities, have created a dwindling in-patient/resident census. When analyzing decreases in gross receipts one may consider factoring in funding from sources like HHS or other state-sponsored efforts. At this time current regulations are unclear on the matter. A requirement to factor such funding may diminish the likelihood of qualifying for the ERC.

    For those who qualify, facilities claiming the ERC cannot “double-dip” on expenditures when reporting for other sources or tax credits, like the WOTC, or other COVID-19 relief programs such as the PPP. More guidance is expected soon on the coordination of the PPP and ERC.

With correct balancing, the above elements create the opportunity to minimize tax liability while maintaining compliance with applicable laws and regulation. We invite you to call us with your questions and concerns at 330-758-8613. Or email us at kcrouthamel@hbkcpa.com or jzarlenga@hbkcpa.com.

HBK Healthcare Solutions is a dedicated team of healthcare provider subject matter experts within HBK CPAs & Consultants. Among more than 800 clients in the healthcare and social assistance businesses, we serve more than 300 private physician and dental facilities. Our unique depth and breadth of experience in medical verticals manifests itself in a full complement of compliance and consulting services, a holistic financial solution.

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About the Author(s)

Kyle S. Crouthamel, CPA, CFE
Kyle is a Senior Manager in HBK’s Youngstown office. He began his public accounting in 2011 in Allentown, Pennsylvania prior to moving to Ohio and joining HBK in 2016. His experience includes attestation engagements and consulting in the healthcare and not-for-profit industries. Kyle also works on cost reporting engagements and has focused experience in those related to Medicare and Ohio Medicaid.

Joshua Zarlenga, CPA, MBA
Joshua Zarlenga is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants with extensive experience in the areas of taxation, financial reporting, profit enhancement and business consulting with closely-held companies. He serves a wide variety of industries including manufacturing, construction, medical practices, senior living services and wholesale distribution, as well as businesses ranging from small, locally-owned companies to large corporations. He can be reached at 330-758-8613, or by email at jzarlenga@hbkcpa.com.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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