The Employee Retention Tax Credit
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October 1, 2022
Volume 18, Issue 10, October 2022
Page(s):
Corbin Rayburn
If you own a business in the United States, there is a very good chance that you were negatively impacted by the COVID-19 pandemic. Vaccines and awareness have afforded most of us a return to normalcy; however, many business owners are still in financial pain. This is precisely why the US Congress included the employee retention tax credit (ERTC) in the Coronavirus Aid, Relief, and Economic Security or "CARES" Act. This tax savings tool was designed to help businesses recover from the losses incurred during the most trying times of the pandemic. Although many dental practice owners have heard of this tax credit, some still have misconceptions about it that are causing them to miss out. Because many businesses were not taking advantage of the ERTC as it first appeared, the US Congress updated it in the Consolidated Appropriations Act of 2021 in order to make it more accessible. In a rapidly changing tax environment, it is important for practice owners to lean on specialized professionals who are keeping up with the most up to date information.
Paths to Qualification
There are two ways that a business can qualify for the ERTC. The first is by proving a 50% decline in gross receipts when compared with the same quarter of the previous year. This "gross receipts test" is the most popular way to qualify and also the method that most business certified public accountants (CPAs) are familiar with. It is a definite possibility for a lot of businesses, but probably only for a quarter or two. Unfortunately, there are a large number of businesses that have claimed only what they are owed under this test and consequently left a ton of money on the table. As you can imagine, this method is very black and white—you either experienced a significant decline in gross receipts, or you did not. That makes many business CPAs more comfortable with this method.
The other path to qualification involves proving that the business experienced a nominal impact on operations as a result of a full or partial government shutdown. As this relates to the dental industry, offices across the country were hit very hard by federal, state, and local orders that demanded that their doors be shut during the pandemic. Many practices were forced to initially reduce their operations to dental emergencies only and later have patients wait in their cars. As you can probably imagine, there is a lot more gray area in this method of qualification. That is why it is incredibly important to work with an established firm that employs highly qualified tax attorneys and CPAs to do these evaluations.
Experience Matters
The list of qualifying factors under the full or partial government shutdown order method is far too extensive to cover in a brief article. Like for most other tax credits, each business must be evaluated on its own merits and in its own situation. There are a ton of ERTC "pop-up shops" that entered this market to make a quick buck and will likely get out just as quickly. Oftentimes, these types of firms do not take the appropriate level care in the claims that they submit; therefore, it is important to work with a trusted firm that will guarantee you protection from audits and other scrutiny from the Internal Revenue Service. There is also a benefit in working with a more established firm in that they can offer you far more ways to realize tax savings than simply claiming the ERTC. For example, at Medical Incentive Advisors, we take the time to understand our clients' individual situations and advise them on other forms of tax savings, such as the research and development tax credit, cost segregation, the 179D energy efficiency tax deduction, and more. In addition, dealing with countless situations specific to the healthcare industry has allowed us to become specialized in this field and bring an extra level of expertise.
Worth Another Look
As I mentioned earlier, the ERTC has changed and evolved at a very high rate. Even if you have already looked into this credit with your business CPA, I would encourage you to give it another look with a specialist. Congress creates these programs and incentives expecting businesses to take advantage of them. I have personally seen the positive impact that the ERTC can have on dental practice owners. It is a powerful credit that could help your business recover six to seven figures in eligible wages.
About the Author
Corbin Rayburn is the founder and CEO of Medical Incentive Advisors.
