Small and Private Practices Can Still Apply for the Employee Retention Tax Credit

Updated on August 27, 2023

The COVID-19 pandemic has been economically devastating for industries across the board. From restaurants to retailers, to various local businesses and mom and pop shops in between, nearly everyone has taken a financial hit that continues to this day. The most crushing financial effects in the U.S. have arguably been felt by countless small healthcare practices. But there’s still hope in the form of the Employee Retention Tax Credit (ERC). 

A survey by the Physicians Foundation estimated that 8% of all physician practices nationwide closed in the first year of the pandemic, while a further 4% estimated they’d close by the end of 2020. Those numbers may not sound significant, but the closure of approximately 16,000 small practices put a strain on the thousands that couldn’t receive care and the practices themselves that lacked the financial resources of larger network-supported or hospital-adjacent medical groups. 

A series of stimulus packages since the early days of the pandemic gave a financial boost to employers negatively impacted by the economic fallout of lockdowns and other devastating setbacks. Financial aid like the Paycheck Protection Program (PPP) offered a lifeline, but it was temporary. Healthcare business owners that took advantage of the legislation’s monetary compensation were seemingly left without further help once the relief package deadlines came and went.    

Practices are still trying to recover, and compounding factors are driving even more ongoing challenges. Economy-wide inflation rose 8.5% in the 12 months that ended in March 2022, driving up the cost of medical equipment and more. Administrative costs such as having to invest in tech to support telehealth, purchasing vaccines, spending money to retain staff amid high turnover rates and safely protecting staff and patients were costly and remain so. 

Supply chain issues persist. A truly staggering 99% of health care systems reported struggling to acquire adequate medical materials, including pharmaceuticals and equipment, since 2020. Eight in ten have sought new vendors just to make up for the constant shortages and stoppages.    

Americans know how complex and confusing the healthcare industry can be to take part in. It’s equally as difficult for the small practices that support the country’s healthcare system. Now, with stagnant recovery due to inflation and a looming recession, these businesses need to find new ways to recover revenue or risk going under. The ERC may be the help they need.     

What is the ERC? 

The tax credit was initially created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which also included PPP loans meant to “provide cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during [the COVID-19 pandemic].” Originally, employers could only claim eligibility for either PPP or ERC relief. But in 2021, the Consolidated Appropriations Act allowed businesses to apply for both. 

The ERC was specifically created via the U.S. Treasury to provide additional relief funds via a refundable employment tax credit to assist small and medium-sized businesses — like small or family-owned healthcare practices — that were negatively affected by the pandemic. While the PPP existed as a forgivable loan, the ERC instead returns payroll taxes already paid by businesses.  

The bad news is that it expired at the end of 2021.  

The good news is that many medical, dental practices and hospital-affiliated organizations do not realize the program expanded eligibility for the refund, allowing them the ability to retroactively claim eligibility for the ERC. Businesses now have up to three years from the end of the program to file for up to hundreds, thousands or even millions of dollars in reimbursements that are without limitations on how to use the funds.  

What Healthcare Practices are Still Eligible? 

If a business had to change or alter normal daily operations due to the pandemic during any time in 2020 or 2021 and saw a decline of at least 20% in gross receipts compared to the same quarter in 2019, then that business qualifies.  

For example, eligible organizations include: 

  • A dentist’s office that was forced to cut down on waiting room capacity 
  • A physical therapist that was required to enforce social distancing protocols that lowered the number of patients booked on a given day 
  • A medical practice that lost patients after shutting down for a period of time 
  • A hospital-related practice that restricted entry to some patients due to lockdown orders 
  • A specialist practice that was forced to delay important but elective procedures 

The criteria are simple and eligibility is broad on purpose. In fact, the IRS expects around 80% of businesses to claim ERC benefits.  

But there are some catches.  

Wages for individuals that own 50% or more of a practice, or those with family on payroll, are not eligible. Additionally, self-employed individuals are out of luck and cannot claim the credit based on their own wages. But they can if they employed other people, meaning they can claim wages paid to those employees.  

How Do Healthcare Practices Claim Credit?  

In early 2021, the IRS issued a notice offering employers some guidance on claiming credit. Yet this applied to qualified wages paid from March 12, 2020 to January 1, 2021, including specific examples of how employers with PPP loans can conclude eligible wages within that timeframe.   

To retroactively claim the credit for the past two years, eligible healthcare employers must crunch some numbers and fill out Form 941-X,  otherwise known as the “Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund” document.   

Each employer must report details such as: 

  • The number of full-time employees across all organizations affiliated with the practice 
  • Wage amounts for each employee 
  • The number of locations where operational disruptions occurred 
  • Quarterly gross receipts from 2019 to 2021 

Final Thoughts 

Small private practices have had to face any number of disastrous and overwhelming challenges over the past two years. Supply chain disruptions, random price increases, staffing shortages and the inability to deliver the type of medical care that could change lives were just some of what countless practices across the country dealt with. Financially speaking, this is precisely why the ERC was created. With the end to these benefits in sight, it is more important than ever for these small businesses to take advantage of programs like the ERC. 

Howard Makler Headshot 1
Howard Makler

Howard Makler is Founder + CEO of Innovation Refunds.