Unwinding the Myths Around the Employee Retention Credit

Updated on May 3, 2023
Group of healthcare workers with digital tablet meeting in hospital boardroom. Medical staff during morning briefing.

The Employee Retention Credit (ERC) has been a valuable lifeline for eligible small healthcare practices impacted by the COVID-19 pandemic. Yet, two years since the tax credit was introduced, many medical, dental and specialty practices haven’t heard about the credit or think it’s too complicated to make it worth their while to check if they may qualify.  

Make no mistake, navigating the 200+ pages of the tax code for this program is complex, and not every business qualifies. But doing your homework to determine if you qualify can mean a significant refund that can be invested into your practice: up to $26,000 per employee.

While many healthcare practices benefitted from the Paycheck Protection Program (PPP), the ERC is different.  It’s not a loan or government handout, the ERC is a refundable tax credit, meaning the IRS refunds eligible healthcare practices a percentage of the money they have already paid in payroll taxes.

However, there are a number of factors to consider about whether you’re eligible for the ERC. For example, if you own 50% or more of a practice, or have family on the payroll, those wages are not eligible. And if you are self-employed, you can only claim wages paid to anyone you employed.  While this is not a substitute for any tax or legal advice, here are some common myths about eligibility:

Myth 1: Only healthcare practices that completely shut down during the pandemic are eligible for funds.

During the height of the COVID-19 pandemic, many practices were severely impacted financially and had to be shut down. With that said, the IRS has kept the definition of a government shutdown fairly open, allowing room for varying situations, for example, specialty practices that delayed elective procedures. Depending on a practice’s operations during COVID-19, it may qualify for the ERC for partially suspended operations. However, a word of caution here: Many employers were subject to government orders requiring them to modify their operations, such as social distancing or the sanitizing of equipment or furnishings. To qualify for an ERC, the IRS requires that a government order caused more than a nominal effect on operations.

Myth 2: Medical practices can’t qualify if they received a PPP loan.  

Originally businesses had to choose between the two, and most opted for the PPP loan, but this is no longer the case. It is possible to apply for the ERC, even if you received PPP funds. You’ll want to check with a qualified professional to determine if your practice may be eligible. 

Myth 3: Any healthcare business that was affected by supply chain issues can automatically claim this credit.  

Many healthcare practices were impacted by supply chain disruptions over the last three years that delayed access to medical materials, including pharmaceuticals and equipment. However, the IRS has said that in order to claim the ERC, you must have been unable to obtain critical goods or materials from alternative suppliers, forcing your own operations to be fully or partially suspended. This means that you’ll need to go beyond just demonstrating that your practice experienced supply chain issues. 

If a company makes false claims that you’ll qualify before careful evaluation or makes promises that seem too good to be true, think twice about working with them. Choose a provider that pledges to carefully follow the law, applies a rigorous process, and works with knowledgeable independent tax experts to evaluate whether your business is eligible to receive an ERC refund. 

The ERC can be a valuable resource for eligible medical and dental practices that kept employees on payroll during the pandemic. Despite the common myths, many practices may still be eligible for the ERC. It’s important to do your homework on companies offering ERC assistance to make sure they’re ethical, skilled, responsible and trusted partners. With those parameters in place, this program can be a fantastic benefit if you qualify.

Knowing more about this important refund will help you determine the best path forward for your practice.