The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, provides several incentives for hospitals and healthcare organizations. While all providers who bill Medicare fee-for-service received Provider Relief Fund distributions on April 10, 2020, we have found that the majority of these same providers are unaware of the Employee Retention Credit (ERC; also established by the CARES Act). The ERC is a refundable payroll tax credit (of up to $5,000 per employee) established to encourage employers to retain employees during the pandemic. The ERC can be taken in addition to any Department of Health and Human Services (HHS) grant to healthcare providers under the CARES Act; and is also applicable to tax-exempt organizations. The benefit is not only material but can be rapidly monetized in several ways, providing immediate assistance to employers that take advantage of the program.
Healthcare – An Essential Business Eligible for the Employee Retention Credit (ERC)
Employers in the healthcare industry have generally been deemed “essential businesses” by local, state, and federal government authorities, leading them to question whether they have experienced a partial suspension of their businesses, which is a qualifying criteria for ERC eligibility. However, recent updates to the Internal Revenue Service FAQs provide clarification specific to businesses deemed essential under the CARES Act with respect to their eligibility to claim the ERC. Specifically, the FAQs provide examples specifying when an essential business may be considered to have experienced a partial suspension of business.
IRS FAQ #30 clarifies that an essential business may have experienced a partial suspension if more than a nominal portion of its business operations were suspended by a governmental order. For example, an employer that maintains both essential and non-essential business operations may suffer a partial suspension if a governmental order restricts the operations of the non-essential business, even if the essential business is unaffected. Additionally, an essential business that is permitted to continue its operations may be considered to have a partial suspension of its operations if a governmental order requires the business to close for a period during normal working hours.
IRS FAQ #34 provides that if an employer is closed by a governmental order for only certain purposes but remains open for other purposes, or is operational for limited purposes, then it has experienced a partial suspension.
To illustrate, in IRS Example 4, Employer H is a hospital that operates an essential business under a governmental order with respect to its emergency department, intensive care, and other services for conditions requiring urgent medical care. Relevant governmental orders prevent Employer H from performing elective and non-urgent medical procedures as non-essential business operations. Although the employer is deemed an essential business, it is considered to have experienced a partial suspension of operations due to the governmental order preventing elective and non-urgent medical procedures.
These recent IRS updates clearly show that even essential healthcare businesses may suffer partial suspensions as a result of applicable local, county or state governmental orders.
The Employee Retention Credit (ERC) provides a refundable credit of up to $5,000 per employee to eligible employers. The credit is equal to 50% of qualified wages, including compensation and health benefits, up to a maximum of $10,000 per employee. Employers may use employee retention credits to offset payroll taxes, including employee income tax withholding, when filing IRS Form 941 (or 941-X to amend a previously filed Form 941). If the employer’s employment tax deposits are less than the total credit, the employer will receive
The calculation of the credit amount is dependent on the number of company employees.
An employer may be classified as an eligible employer in one of two ways:
- The employer’s business is fully or partially suspended by governmental order due to COVID-19 during the calendar quarter, or
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. (Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, it no longer qualifies after the end of that quarter.)
The IRS has also provided clarifying guidance for businesses that continue to operate in a limited capacity in a remote manner. IRS FAQ #33, says that a business can be considered to have experienced a partial suspension if any workplace closure caused the suspension of business operations for certain purposes, even if business operations continued because employees telecommute.
Why Synergi Partners?
There are many companies that offer tax credit and incentive consulting services. There are very few that are 100% focused on it… Our process involves researching each piece of legislation to understand the qualifications for each tax credit opportunity in-depth. This information is then recorded in our innovative software application so that each client candidate, new hire and location can be matched against the latest eligibility requirements and applicable incentives.