Guide to Employee Retention Credit for Medical & Dental Practices

The Employee Retention Credit (“ERC”) is a cash refund through payroll tax that is available to medical, dental and hospital-affiliated practices, including those owned through private equity, that meet the following criteria:

• Were affected by government orders imposing partial shutdowns on office activities, precluding access to hospitals, or limiting the ability to perform elective procedures; or
• Suffered significant declines in gross receipts.

While many employers have some familiarity with the ERC, confusion exists around the qualifications and application processes. Did you know that medical, dental and hospital-related practices owned through private equity can qualify for the ERC? Even if you received PPP loans, you can still qualify for the ERC.

How to Qualify for The Employee Retention Credit

Government Mandate Test

Medical practices, dental practices, or hospital-affiliated organizations that experienced fully or partially suspended operations due to orders from an appropriate governmental authority to limit commerce, travel, or group meetings due to COVID-19 can qualify as Eligible Employers for purposes of the ERC. The period that the employer pays qualified wages lasts while the government mandates are in effect.  This was common in 2020 and early in 2021.

Examples that have allowed Medical, Dental, and Hospital-affiliated organizations to qualify include:

• A medical practice that had capacity restrictions on its waiting room in 2020.
• A medical practice whose doctors were restricted from performing elective procedures under COVID orders.
• A practice where hospital access restrictions delayed the ability to perform certain medical procedures.
• A physical therapy center that was subject to strict spacing requirements in a gym; thus, lowering the number of patients that could be seen in a day.
• A medical device company that installed and serviced robotic surgery equipment and whose technicians were restricted from entering a hospital due to COVID orders.
• Dental or medical offices that were required to close due to COVID restrictions and then re-opened with restrictions on how many patients could be seen.

Gross Receipts Test

In the first, second and third quarters of 2021, to the extent the gross receipts of the business are more than 20% down from the gross receipts of the organization in the same calendar quarter of 2019, the organization will qualify as an Eligible Employer. The gross receipts decline requirements for 2020 are more difficult to meet due to the requirement to show a greater than 50% decline.

Examples of Gross Receipts:

• Gross Revenues
• Includes any income from investments
  • Dividends
  • Interest
  • Rents
  • Royalties and annuities
• Tax accounting method for income recognition applies

Additionally, your practice may qualify for four separately calculated ERCs:

1. 2020 ERC (This is the most commonly claimed credit by medical facilities)

• Maximum credit = $5,000 per employee
• Reported on forms 941-X for Quarters 2-4

2. 2021 Quarter 1 ERC

• Maximum credit = $7,000 per employee
• Reported on Form 941-X for Quarter 1

3. 2021 Quarter 2 ERC

• Maximum credit = $7,000 per employee
• Reported on Form 941-X for Quarter 2

4. 2021 Quarter 3 ERC

• Maximum credit = $7,000 per employee
• Reported on Form 941-X for Quarter 3

Enhanced Benefits

For purposes of the 2020 ERC, medical or dental practices with 100 or fewer full-time employees (as measured, on average, in 2019) are entitled to the maximum benefits available under the ERC calculations, if they remain an Eligible Employer under either the Government Mandate Test or the Gross Receipts Test. This rule was liberalized for purposes of the 2021 ERCs by increasing the full-time employee threshold to 500 or fewer.

Credit Rate

• 2020 Credit: 50% of the qualified wages (including employer paid healthcare) paid to each employee. Qualified wages are limited to $10,000 per employee.
• 2021 Credits: For the first, second and third calendar quarters, 70% of the qualified wages (including employer paid healthcare) paid to each employee, per quarter. Qualified wages are limited to $10,000 per employee, per quarter.

PPP Loan Interplay

Businesses that received Paycheck Protection Program (“PPP”) loans also can qualify for the ERC. When the ERC was first authorized as part of the CARES Act, any organization that received funding under PPP was statutorily prohibited from claiming an ERC. Later, in December 2020, when the ERC was extended and enhanced as part of the Consolidated Appropriations Act, the statutory prohibition against PPP recipients claiming ERC benefits was removed.

Employee Retention Credit Application Requirements

The information that businesses need to provide when applying for the ERC include the following:

Number of full-time employees across the organizations associated with the EIN

• Full-Time Employees for 2019
• FTE is an employee that works 130+ hours per month or +30 hours per week

Government Mandates

• Consider where you may have been affected by government orders (causing a full or partial shutdown)
• Collect all company locations where government orders may have caused partial shutdown.

Gross Receipts

• Provide Gross Receipts for each of the qualifying quarters in 2019, 2020, and 2021

PPP Loan Documents

• Provide all PPP loan forgiveness documentation to identify what expenses are being used for forgiveness

Wage Data

• Wages for each employee, by pay period, for the period covered by the PPP loan(s)
• Copies of 941 payroll returns for 2020 and 2021

All medical, dental or affiliated practices, including those owned through a private equity, should consider reviewing their eligibility for ERC, even if they received PPP loans. Due to the substantial number of government orders limiting the normal activities in 2020 and 2021, many businesses are receiving substantial cash benefits, in addition to PPP benefits already received.

Learn more about the Employee Retention Credit and receive guidance to qualify for the credit by contacting your Cherry Bekaert advisor or Martin Karamon, Tax Principal and leader of Cherry Bekaert’s ERC Services Team.