5 Things Agencies Need to Know About the Employee Retention Refund

Homecare agencies are now finally realizing that they are eligible for the Employee Retention Credit (ERC), but even those that have filed for it are largely underclaiming and paying unnecessary upfront fees. The credit can be worth six to seven figures in cash refunds to a homecare agency, but there is a lot of misinformation around the credit, which has led to slow adoption and self-censorship. Let’s take a moment to walk through the credit and how homecare agencies can claim even more funds from the program.

A Brief History of ERC

First, it’s worth taking a brief look at the history of the ERC to understand where the confusion around it lies. The credit was originally introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) act in 2020, but at the time you could not claim both ERC and Paycheck Protection Program (PPP) loans. As most businesses opted to claim PPP, ERC was largely ignored.

As the pandemic stretched on, however, Congress recognized that it needed more options to bolster American businesses. With the ERC already in place, lawmakers decided that they needed to allow businesses to claim the credit alongside PPP loans. It took the Internal Revenue Service (IRS) some time to release guidance that clarified this about-face by Congress, which only caused more confusion.

When guidance was released in December 2020, it seemed clear that the intention was to make the ERC as widely applicable as possible. In fact, Eric Hylton, the former IRS commissioner of the Small Business/Self Employed Division, said at the time that it was expected that 70% to 80% of businesses would be claiming the credit.

And yet it turns out that the number of companies that have actually claimed has fallen short of that projection due to confusion and misinformation.

What You Should Know

Here are some of the most important things your agency should understand about these tax credits.

1. You can claim ERC & PPP together.

One of the most common reasons that I hear that a homecare agency did not claim ERC was because they have already claimed PPP. With the passage of the Consolidated Appropriations Act of 2021, the bar between claiming both ERC and PPP was lifted. The good news is that means you can make claims on both programs.

2. ERC comes in the form of a refund check.

Many businesses have assumed that the ERC is a loan program like PPP. That’s not the case, as it is actually a credit against your payroll tax. Since you likely have already paid your payroll taxes for 2020 and 2021, filing for ERC means you will get a check from the government that you can cash and do with as you like.

3. ERC is not WOTC.

Many in the homecare industry have confused the ERC with the Work Opportunity Tax Credit (WOTC). The two are separate credits that can potentially be claimed together. The WOTC provides a credit to businesses that hire workers from a targeted group such as veterans, ex-felons and those on Supplemental Security Income (SSI).

4. There are two ways to qualify for ERC.

Perhaps the biggest reason homecare agencies are not taking full advantage of the ERC is because they are only qualifying based on a decline in revenue. That is only one way to qualify. You can also qualify if your business faced a disruption due to government mandates. For instance, if there were facility restrictions that limited how many clients you could visit, reduced your ability to market to new clients or caused patient census declines, then your agency can qualify for even more in refunds.

5. You don’t need to pay upfront fees to an ERC provider.

There is no legal requirement from the IRS that an ERC provider charge you upfront fees. Many providers have sprung up overnight and some are asking homecare businesses to pay fees to find out how much they can claim. Be wary.

A Case Study

I recently helped a homecare agency claim more in ERC credits than they initially thought they were entitled to. The company had originally claimed the credit due to a decline in revenue in 2020. By 2021, their business was actually up compared to before the pandemic and they assumed they could not qualify for ERC in 2021. It is worth noting that the 2021 version of the credit is significantly more generous than the 2020 version, as you can claim up to $7,000 per employee for each quarter versus $5,000 per employee for the entire year.

Even though the agency was profitable, it still faced restrictions at the facilities where its clients resided. In particular, caregivers could only visit their existing clients and were prevented from entering the facility to market to potential new clients. There was also a significant decline in the number of hours caregivers could be with clients due to restrictions.

These restrictions qualified the agency for multiple quarters in 2021 and the final credit they received was $2.8 million.

I do want to make one final point, which is that it is not too late to apply. Many people have assumed that since you can only claim the credit for the 2020 and 2021 tax years, that the deadline has passed. That simply isn’t true, as you can amend your 2020 and 2021 returns for the next couple of years.

That said, I would encourage every homecare agency to reach out to a reputable credits and incentives provider for help in claiming this powerful refund as soon as possible. If you are claiming based on impacts to your business, then it’s better to document and substantiate those impacts as close to the time of the events as possible. There are a lot of things that can happen if you wait too long to claim. The facts and circumstances surrounding the events will start to fade from memory, you may lose employees that may be critical to documenting your qualifications, and the necessary paper trail may get lost in the shuffle.