Qualified Health Plan Expenses Under The ERC

Navigating tax credits and health plan expenses can be a challenge, can’t it? You’ve likely heard of the Employee Retention Credit (ERC aka ERTC), but do you fully understand it?

This article will help you grasp the ins and outs of ‘Qualified Health Plan Expenses under the ERC’. You’ll learn what qualifies, who can claim, and how the recent IRS reversal impacts you.

Ready to dive in? Let’s unravel the complexities of the ERC together.

Requirements for Claiming Health Plan Expenses

To understand the requirements for claiming health plan expenses, you’ll need to familiarize yourself with the eligibility criteria set by the Employee Retention Credit (ERC) program.

First off, your business size matters. Small employers, with fewer than 100 employees for 2020 or 500 in 2021, can claim health plan expenses as qualified wages. Large employers can now claim health plan expenses for employees on furlough or unpaid leave.

To qualify for the ERC, your business needs to meet one of two conditions. Either it must have partially or completely suspended operations due to government orders, or it must have experienced a significant reduction in gross receipts. In 2020, a 50% reduction in receipts compared to the same quarter in 2019 was required. However, in 2021, this requirement was lowered to a 20% reduction.

You must also ensure that your health plan expenses qualify. Group health plan expenses paid by eligible employers from March 13, 2020, through December 31, 2020, count as qualified wages for the ERC. This includes payments made by the employer and costs paid by employees through pre-tax contributions. Contributions to Health Reimbursement Arrangements (HRAs) and Health Flexible Spending Accounts (FSAs) can also be claimed. However, contributions to Health Savings Accounts (HSAs) and Small Employer Health Reimbursement Arrangements (QSEHRAs) don’t qualify. The maximum claimable amount per employee for all calendar quarters is $10,000.

Ultimately, understanding these requirements can be complex, so don’t hesitate to seek professional advice from an ERTC tax expert if needed.

Health Plan Expenses Qualification Examples

Understanding how health plan expenses qualify for the Employee Retention Credit (ERC) might seem daunting, but let’s break it down with some real-world examples.

Imagine you own a small restaurant. When the pandemic hits, you’re forced to furlough your employees, but you continue to cover their health insurance costs. Even though you’re not paying their wages during this period, you can count the amount you’re spending on their health coverage as qualified wages for the ERC.

Here’s what counts as health plan expenses:

• Group health plan expenses you paid from March 13, 2020, to December 31, 2020.
• Contributions you made to health reimbursement arrangements (HRAs) and health flexible spending accounts (FSAs).
• The portion of the cost the employees paid through pre-tax contributions.

However, contributions to health savings accounts (HSAs) and small employer HRAs (QSEHRAs) don’t qualify.

The eligibility for the ERC is determined by one of two requirements: your business operations were either partially or totally suspended due to government orders, or you experienced a significant reduction in gross receipts. For the latter, in 2020, you must have had at least a 50% reduction in receipts compared to the same quarter in 2019. For 2021, this threshold is reduced to a 20% reduction.

However, if you’re unsure about whether your health plan expenses qualify for the ERC, don’t hesitate to seek professional help. The effort of reviewing past records may pay off big time in claimed tax credits.

Determining ERC Eligibility

While you’re figuring out if your business is eligible for the Employee Retention Credit (ERC), it’s important to know that there are two key requirements to meet.

First, your operations must have been either partially or fully suspended due to government orders related to COVID-19. Alternatively, you must have experienced a significant reduction in gross receipts during a calendar quarter in comparison to the same quarter in 2019.

In 2020, this reduction in gross receipts must have been at least 50%. However, in 2021, the rules changed, and it was lowered to a 20% reduction. These percentage reductions are the thresholds for eligibility and are firm benchmarks. There’s no flexibility in these numbers, so it’s crucial to get your calculations right.

Keep in mind that gross receipts refer to the total revenue from all sources, without subtracting any costs or expenses. It’s a top-line number, not a measure of profit or loss.

It’s also important to note that ERC eligibility is determined on a quarter-by-quarter basis. So, even if your business didn’t qualify in one quarter, you may still be eligible in another.

If you’re still unsure about whether your business qualifies, consider seeking professional advice. Experts in the ERTC tax credit can provide clarity and ensure you’re not missing out on this valuable credit. After all, the ERC is a fully refundable tax credit that can provide substantial financial relief to eligible businesses. It’s definitely worth taking the time to understand and apply for it.

IRS Reversal on Employee Retention Credit

In light of recent changes, you’ll be interested to know that the IRS has reversed its previous stance on the Employee Retention Credit (ERC).

Previously, the IRS maintained that employers couldn’t claim the ERC if they only paid health plan premiums for furloughed employees and didn’t provide any cash wages. This stance has been flipped, offering a significant advantage for businesses amidst the pandemic. Here are some crucial points to note:

• The IRS now allows employers to claim the ERC for qualified health plan expenses, even if no cash wages are paid.
• The IRS updated FAQs on May 11th to clarify this new interpretation, providing examples that shed light on the change.
• Now, employers who continue to pay health plan expenses for furloughed employees can claim these expenses as qualified wages.
• This change encourages employers to maintain health benefits for furloughed employees, benefiting both parties during these challenging times.

With this reversal, businesses can achieve some relief during the economic strain caused by the pandemic. It’s recommended that you review the updated FAQs and consult an ERTC tax professional to understand how this might impact your business.

This reversal aligns with the CARES Act’s goal to offer economic relief, making it a welcome change for employers nationwide. Stay updated, and ensure your business maximizes the benefits offered by these changes.

Tax Benefits for Health Coverage Costs

You’ll find that recent legislative measures offer some appealing tax benefits for your business’s health coverage costs. Particularly, the Employee Retention Credit (ERC) provides valuable opportunities to claim health plan expenses as qualified wages. The definition of qualified wages has been broadened to include health plan expenses for businesses of all sizes, especially if you’ve had to furlough employees or significantly reduce operations due to government orders.

For small businesses, those with less than 100 employees in 2020 or less than 500 in 2021, you can claim health plan expenses. For larger businesses, you can now claim these expenses for employees on furlough or unpaid leave. The catch is you must meet specific requirements. In 2020, your gross receipts needed to have been reduced by at least 50% compared to the same quarter in 2019. In 2021, that reduction threshold dropped to 20%.

Qualified health plan expenses include employer’s contributions to group health plans, health reimbursement arrangements (HRAs), and health flexible spending accounts (FSAs). However, contributions to health savings accounts (HSAs) and small employer HRAs (QSEHRAs) don’t qualify. It’s also important to note that the maximum claimable amount per employee is $10,000.

Understanding these benefits can help you strategically navigate your business’s financial health in challenging times. If you’re unsure, don’t hesitate to seek professional advice as navigating these tax benefits can be complex. Yet, the potential savings could outweigh the effort required to understand and apply these measures.

Conclusion

Now you’ve navigated the ins and outs of qualified health plan expenses under the ERC. You’ve learned how to determine eligibility, understand the IRS’ reversal, and identify potential tax benefits.

It’s complex, but worth it. By leveraging this provision, you can provide for your employees while protecting your business.

So, take a deep breath, utilize these insights, and steer your business towards a secure future.

Remember, every step taken towards understanding is a step towards success.