CareNotes

The Significance of the Employee Retention Credit for Long Term Care

April 21, 2021

This is a guest article by Steve Harmon, sales executive at PayNorthwest, an OHCA business partner.


The Employee Retention Credit (ERC) is an important, and often overlooked, part of COVID-related relief legislation for businesses. From its inception in the original CARES Act in March of 2020, the ERC has been expanded and enhanced twice in subsequent acts from Congress. For long term care organizations, understanding how the ERC works and the significant financial relief it can provide your organization can provide significant benefits at a time when many long term care organizations are struggling.

As it stands today, the ERC provides payroll tax credits equal to 70% of up to $10,000 per quarter per employee of qualified wages paid in 2021 and up to 50% of $10,000 per year per employee in 2020. And yes, providers can go back now to claim your ERC credit for 2020 even if they received a PPP loan (which used to be a disqualifier but is no longer).

The credit is first used to reduce federal payroll taxes owed for the quarter in question, and then, if the credit exceeds that amount, results in a check from the IRS back to the business.

Businesses qualify if they have had more than a 20% decline in gross receipts for 2021 (50% decline for 2020) as compared to the same quarter in 2019 (see first bullet point for additional detail).

Importantly, revenue decrease is NOT the only qualifier. Employers are eligible for the credit for any quarter in which they have either had to fully OR partially suspend operations because of governmental orders related to COVID-19, which more than nominally impacted the business.

The ERC is now available to any employer of fewer than 500 employees. Eligibility differs a bit depending on whether the organization has fewer than 100 employees or fewer than 500 employees.

A few more details on the ERC:

  • For 2021 only, providers can use the receipts from the prior quarter compared to current quarter 2019. For example, if Q1 202 (prior quarter at the time of this post) gross receipts are less than 80% of Q2 2019 (“current quarter” of this post is Q2) then they would qualify for ERC in Q2 2021.
  • With regards to the “more than nominally impact” test for partially suspended operations, the IRS has clarified this to mean impacting the business by more than 10%.
  • There are a lot of moving parts used to calculate the retroactive ERC amount for 2020. For example, no wages paid via the PPP loan proceeds can be used to calculate ERC Credit, and the work status of the employees during the time of shutdown or revenue drop affects the calculation of credit eligibility.

Here are the basic steps to see if employees can take advantage of this potentially significant credit, and if so how to go about it:

  1. Analyze the business quarter by quarter regarding the 20%/50% decline in revenue relative to 2019 or the business disruption by government order provision.
  2. Run payroll and headcount numbers for 2019 to ensure the business has fewer than 500 (or 100 for 2020) full time employees.
  3. Amend past 941 tax returns or prepare current 941 return (as the case may be), to claim the available credit.
  4. File form 7200 for the current quarter for any amount of the credit in excess of your 941 taxes.
  5. Document, document, document supporting evidence for qualifying for and claiming the ERC in any given quarter.

For providers who would like to discuss the ERC further, or need help with some of the steps outlined above, please contact Steve Harmon of PayNorthwest for assistance at 360-840-0078 or steveh@paynorthwest.com.