Employee Retention Credit: Senior Living & Care Considerations
Today’s blog is provided by Stephen Taylor, a Principal in health care. He serves as the leader of CLA’s Privately Held Senior Living & Care practice.
For many Senior Living & Care organizations, the COVID-19 pandemic induced operational challenges that will outlast Public Health Emergency funding sources. As many operators pursue a financially viable path forward, they are being met with significant increases in cost structures, often putting strain on financial outcomes. Operators are losing sleep at night wondering how they will rebuild or even maintain operations. Funding from the Provider Relief Fund along with other federal or state coronavirus relief dollars have been essential, but as various reports demonstrate (see HERE and HERE), many operators still need additional financial assistance to recover.
Enter the Employee Retention Credit (ERC).
The ERC remains available for employers, including Senior Living & Care operators, to claim on amended payroll tax returns for qualifying periods. Applicants must meet eligibility criteria and have paid eligible wages during those times. There are two options for employers to claim this credit: those who experienced a significant decline in gross receipts or who were subject to either a full or partial suspension by a government order. The credit that can be claimed on eligible wages is a maximum amount of $5,000 per employee in 2020 and $7,000 per employee per quarter for the first three quarters of 2021. The statute allows for this credit to be claimed by allowing employers to amend their payroll tax returns for three years after the original filing deadline.
This means that senior living operators may still assess whether they qualify for the ERC and, if so, are able to amend returns in order to capture this credit.
Key Considerations
While there are many, many considerations to keep in mind that we will not highlight in this blog, operators must be able to prove that they experienced a significant decline in gross receipts or were subject to a full or partial suspension of operations. Operators must also be able to show and have documentation covering their considerations for claiming the ERC. The IRS will audit ERC credits in the coming years and has provided extensive guidance to date. So, it is very important that those claiming the credit are fully aware of the requirements and potential for audit.
There may be several Senior Living & Care employers who may not have experienced the significant decline in gross receipts, and it may be worth exploring the partial suspension of operations. It is important when reviewing any government orders related to suspensions that employers have both the exact government order (as defined by Notice 2021-20), and the associated timeline in their documentation. Under a partial suspension of operations, the requirements are that there must be a more than nominal impact directly correlated with the government order. Employers need to have quantifiable support of the “more than nominal” impact of the government order on their business operations. Guidance defines “more than nominal” as at least 10%.
Because all businesses and industries are not the same, there is some flexibility on what is measured for the 10% business impact. This must be supported by the fact pattern for that employer and must link to the government order to a quantifiable “more than nominal impact” to business operations. There is still limited guidance related to how an organization can prove that it falls into this more than nominal safe harbor of partial suspension of operations of at least 10%. Therefore, well-documented qualitative and quantitative fact patterns are key.
Finally, with many organizational structures, closely reviewing the aggregation of related parties is imperative so that related entities are treated appropriately as a single employer for purposes of ERC. If a member of an aggregated group, the IRS will want to see the computations and calculations that determined there was an aggregated group and how the aggregation affected the determination and allocation of the ERC. This is particularly important when determining the average number of full-time employees in 2019, as large employers are subject to limitations of available wages.
And those are only a few of the critical eligibility, aggregation, qualification, and calculation aspects for the ERC. Additionally, the IRS is taking up to a year (or even longer) to process amended 941X forms and to issues the refunds. Plus, while employers have three years to amend their returns to claim the credit, the IRS has five years to audit (and even disallow the refund). If disallowed, an employer would be required to pay it back along with interest and penalties.
How we can help
As with anything tax-related or that involves federal requirements, you should proceed with caution and be circumspect. The ERC is no different, and you should be very careful with this credit. There may be other vendors out there claiming this is a simple credit and everyone qualifies. That is simply not the case. Here are a few recommendations as you proceed:
- Choose your advisors wisely; only choose those that are qualified and trusted
- Ask your advisor to document each step to the fullest of their ability and to provide a comprehensive narrative related to the shutdown where appropriate.
- Understand that there are risks to claiming the credit even with the support of a qualified advisor. This is because there remain gaps in the IRS guidance
If you have questions, we’re here to know you and help you.
Note: the ERC is not limited to senior living and is available to qualifying employers in health care and beyond. As an example, CLA’s manufacturing and distributions industry has highlighted the ERC in their blog as well.
Jennifer Boese is the Director of Health Care Policy at CLA. She is a highly successful public policy, legislative, advocacy and political affairs leader, including working in both the state and federal government as well as the private sector. She brings over 20 years of government relations and public policy knowledge with her to CLA. Well over half of her career has been spent dedicated to health care policy and the health care industry, affording her a deep understanding of the health care market and environment, health care organizations and health care stakeholders. Her role at CLA is to provide thought leadership, policy analysis and strategic insights to health care providers across the continuum related to the industry's ongoing transformation towards value. A key focus of that work is on market innovations and emerging payment models. Her goal is to help CLA clients navigate and thrive in an increasingly dynamic health care environment.
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