The Employee Retention Credit (ERC), initially created by the CARES Act in March of 2020, is a refundable payroll tax credit for wages paid and health coverage provided by an eligible employer. This credit is available for qualified wages paid during the period March 13, 2020, through September 30, 2021. The ERC can be used by practice owners to offset federal payroll tax deposits or refunded by amending the applicable quarterly Form 941.
The credit available in 2020 vs. 2021 has significant differences related to eligibility requirements and credit maximums. From a high level, your practice likely qualifies for the ERC if:
1. Your practice operations were suspended due to a COVID-19 governmental order in 2020 or 2021.
OR
2. Your practice experienced a significant reduction in quarterly gross receipts. What is a significant reduction? Well, for 2020, significant is defined as a 50 percent decline in gross receipts compared to the same quarter in 2019. For 2021, significant is defined as a 20 percent decline in gross receipts compared to the same quarter in 2019. Note that 2019 is the reference period for both the 2020 and 2021 credit.
Most dental practices, even if they didn’t experience the 50 percent decline in revenue in 2020, are still likely to qualify for some ERC during the period of suspension — as most were ordered to close by governmental order for several weeks in 2020. 
As the credit is based on wages paid, we have found that many practices still had paid wages during the period of suspension, whether it was related to the timing of the payment of a normal, pre-shutdown payroll, or pay for staff kept on during the shutdown for emergencies.
For 2020, eligible employers may claim a 50 percent tax credit of up to $5,000 per employee for the year, based on maximum qualified wages of $10,000 per employee. Note that qualified wages also include the cost to continue providing health benefits to the employee.
For 2021, the credit has been changed to a 70 percent tax credit of up to $7,000 per employee per quarter, based on maximum qualified wages of $10,000 per employee per quarter.
Although this credit may seem straightforward from a high level, it’s important to speak with an experienced CPA or trusted advisor if you think you are eligible. There are many nuances and detailed regulations related to this credit that must be analyzed before claiming. You must ensure that you are not counting wages for this credit that have already been reported for PPP loan forgiveness, which can require some detailed analysis. There are also some exclusions required for wages paid to majority owners and related parties that must be considered.
Written by:
Doug Sellan, PMA Practice Transitions
Lauren Holt, CPA, Rea & Associates
Doug Sellan and Lauren Holt, CPA are proud members of ADS Transitions.
