Long-Term Care Facilities: Are you Getting the Most Out of the Employee Retention Credit?

The pandemic affected some industries more than others, and it’s fair to say that long-term care facilities (LTCFs) were some of the hardest hit. Indeed, the full spectrum of LTCF’s (nursing homes, adult day care centers, assisted living facilities, etc.) was pummeled, and it is still struggling to make a comeback. Although many LTCF operators may not have experienced a decline in gross receipts—especially if they received increased compensation from Medicare patients during the pandemic—this does not mean they should conclude that they are ineligible for the potentially business-saving relief out there in the form of the Employee Retention Credit (ERC). Remember, the ERC was enacted to award employers—including those in the LTCF industry—who retained employees during the pandemic a significant refundable tax credit—up to $26,000 per employee.

ERC Basics for LTCFs

The ERC is a refundable tax credit for those businesses that kept their employees on payroll and/or incurred health plan expenses during the pandemic. Again, eligible business may receive up to $26,000 per employee ($5,000 in 2020 and $7,000 for each of the first three quarters in 2021). The ERC is applied toward payroll taxes as reported on the quarterly Form(s) 941/941-X.

LTCFs may be eligible to claim the ERC if either of the following are true:

1. The business suffered a significant decline in gross receipts, as described below:
   Tax Year 2021 (Quarters 1, 2, and 3):
   Employer is eligible if business’s gross receipts are more than 20% down from the gross receipts in the same calendar quarter of 2019.
   (b) Tax Year 2020 (Quarters 1 through 4):
   Employer is eligible if business’s gross receipts are more than 50% down from the gross receipts in the same calendar quarter of 2019.
2. The business was fully or partially suspended due to a governmental order limiting commerce, travel or group meetings related to COVID-19.

*Note: Forgiven Paycheck Protection Program (PPP) loans and some other pandemic relief grants may be excluded from this gross receipts calculation if excluded from all quarters consistently.

LTCFs May Still Qualify Under the Partial Suspension Test

LTCF’s generally find themselves subject to regulation at every level of our government. This typically means layer upon layers of regulation even in non-pandemic times. Federally, they may face regulation via the Centers for Medicare and Medicaid Services (CMS) and/or the Centers for Disease Control (CDC). Additionally, they are subject to regulation by State and local authorities. As one of the most heavily regulated industries in the nation, LTCFs’ operations were undoubtedly impacted in various ways when forced to comply with governmental orders related to COVID-19 —or face serious consequences. We urge LTCF’s who may have dismissed their ERC eligibility based on the failure to meet the gross receipts test to reflect here on the “partial suspension” test. 

Remember, this test does not necessarily mean that a full suspension or closure occurred; rather, a “partial suspension” should direct attention to the way LTCF’s conducted their business (i.e., how they operated) as a result of mandated compliance with a pandemic-related governmental order.  More specifically, to qualify under this test, an LTCF needs to establish that:

1. It was subject to a governmental order, and
2. The order had more than a nominal impact (whether in portion or effect) on its business operations, either due to suspending them or requiring modifications to them.

This is a complex facts and circumstances analysis – and it should be conducted by experienced professionals who have experience applying each set of unique facts to the applicable parameters of the law and guidance implementing and defining the eligibility tests. It’s helpful, here, though, to list some of the more common examples we have seen where LTCF’s are eligible when government orders restricted their operations:

1. A range of CMS orders, including but not limited to: prohibiting visitors, restricting or entirely prohibiting third party providers, and mandatory testing when outbreaks occurred.
2. CDC orders (perhaps the most notable being a mandate to create “COVID wings” (potentially limiting a facility’s capacity/spacing when forced to carve out space for observation and/or quarantine).
3. Various State and local orders, including ones that prohibited new resident admissions (or limited them for a specific time period—i.e., 14 days).
4. Governmental orders prohibiting LTCFs’ marketing efforts, including tours of the facility. 

Of course, this list is not exhaustive, and LTCFs must tie the orders directly to a more than nominal impact (in portion or effect) to their operations. For example, many LTCF’s may do this by proving how the order(s) resulted in a more than 10% decline in census/patient days using relevant quarter comparisons.  And especially in the context of CMS regulation, we are aware that LTCFs were subject to CMS issued pandemic-related infection control procedures which were required in order to sustain an LTCF’s participation in the program. These facilities were subject to surveys/compliance checks which could result in substantial civil penalties or loss of funding if found noncompliant.  

*Note that orders creating qualifying partial suspensions were more common than many employers and tax practitioners realize.

Conclusion

While we are encouraged seeing an increasing number of LTCFs of all types (nursing homes, adult day care centers, assisted living facilities, etc.)  receiving much needed relief in the form of ERC, unfortunately, due to a great deal of misunderstanding fueled by an abundance of misinformation about the ERC, many LTCFs are still missing out on funds that could mean their doors stay open. 

If your LTCF hasn't claimed ERC yet, contact our team at (410) 497-5947 or schedule a confidential consultation today.