Long-term care facilities may qualify for employee retention credit
A significant number of senior living and long-term care organizations may have computed the gross receipts reduction test and concluded that they wouldn’t qualify. However, organizations may also qualify if they experienced a negative impact on their business as a result of a full or partial suspension of operations induced by government orders. Many also concluded that they wouldn’t qualify as “small employers” under the rules, making them ineligible for the most valuable parts of the credit. In fact, a closer look at the ownership structures of individual facilities within a broader group could result in a determination that the group is eligible for small employer treatment.
When is an organization shut down?
The ERC rules allow that a business may qualify if its operations were subject to a “full or partial suspension” as the result of a government order, and the impact was more than nominal. So it falls to the taxpayer to determine which government orders they were subject to, whether compliance with such orders would qualify as a partial suspension under these rules, and if the resulting impact on operations meets the threshold of more than nominal.
Nursing homes are one of the most heavily regulated industries in the country. Complying with some of the regulations resulting from the COVID-19 pandemic, such as those from the Centers for Medicare and Medicaid Services and state and local health officials, could impact the business in a way that meets this threshold under the law.
To be clear, organizations evaluating facts and circumstances against the eligibility criteria for the ERC should be ready to meet a high documentation threshold. That said, it seems likely that many senior living and long-term care facilities that dismissed their eligibility for this credit out of hand based on the failure to meet the gross receipts test could benefit from a second look at this alternative criteria.
Organizations evaluating facts and circumstances against the eligibility criteria for the ERC should be ready to meet a high documentation threshold.
When does an organization qualify as a small employer?
Using 2019 data, an organization is considered a “small employer” if the average full-time employee count is below 100 for 2020 credit consideration. This increases to 500 for the 2021 credit consideration. If you’re considered a “small employer” in 2020 or 2021, organizations meeting the remaining credit criteria are eligible for significantly higher ERC benefits, including a refundable credit on wages paid and health insurance for all employees during the partial suspension period.
Senior living and long-term care organizations may have heard the initial rules and figured they would be well over the employee count by counting full-time equivalents. But there are some important distinctions to be made. First, it’s actual full-time (more than 30 hours per week) employees, not full-time equivalents. Knocking part-timers out of the count can help many reduce the number of employees included in the calculation.
Second, while many facilities in this space operate under one brand that may be controlled by ownership groups that have some common ties, the individual ownership structure of each property may comprise different collections of investors within the group. It’s possible that the different ownership groups in the different facilities could each qualify as smaller employer “groups” for purposes of the ERC, making more organizations eligible under the small employer rules.
What to do now?
The ERC ended for most taxpayers after the third calendar quarter of 2021. However, taxpayers who qualified for the credit but failed to claim it can file retroactively for a refund from the IRS using an amended payroll tax form to correct the errors. If you think that your organization may qualify for the credit based on the facts we’ve described, feel free to contact us to discuss the individual facts and circumstances of your situation.