business of pediatrics

What Practices Should Know About the COVID-19 Payroll Tax

The COVID-19 pandemic has had serious impacts on independent pediatricians, but there are resources available for both individuals and small businesses, including pediatric practices. In 2021, a new and important resource will be the COVID-19 payroll tax, which is available for businesses that lost a certain amount of revenue in 2020. If you’re concerned about paying rent, making payroll, or are considering laying off staff, assistance from the Internal Revenue Service, the Small Business Administration, and residual CARES Act relief funding can help. Here’s everything small businesses need to know about recovering from the pandemic in 2021.

New in 2021: COVID-19 Payroll Tax

The CARES Act was the U.S. government’s first response to the COVID-19 pandemic. In the Act, tax relief was made available to businesses to assist recovery efforts. This tax relief has been extended for business that in 2021, and in some cases, 2020, continued to retain employees even with a drop in revenue due to the pandemic with the Employee Retention Credit, a refundable tax credit.

According to the IRS, eligible employers can claim a refundable tax credit if they meet the requirement, which we’ll detail below. This tax credit has huge implications for independent pediatricians because as small businesses, many could qualify for another source of financial relief.

Who can claim this tax credit? Here are the requirements, quoted from the IRS’s press release (emphasis added):

  1. A full or partial suspension of the operation of their trade or business during this period because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or
  2. A decline in gross receipts in a calendar quarter in 2021 where the gross receipts of that calendar quarter are less than 80% of the gross receipts in the same calendar quarter in 2019 (to be eligible based on a decline in gross receipts in 2020 the gross receipts were required to be less than 50%).

Your practice may also qualify if you opened a practice after 2019, or if your practice used Payment Protection Program (PPP) funds for payroll in 2020. Please visit the IRS’s additional guidance on claiming the Employee Retention Credit for more information. Practices can submit for this tax credit until June 30th, 2021.

Recovery Resources Overview

Many if not all of the funding, loans, and recovery resources available to small businesses apply to independent pediatricians. Several programs and funding sources were renewed in early 2021 by the American Rescue Plan Act, which both replenished sources like the Payment Protection Program (PPP) and introduced new programs. Here’s an overview of the programs that apply to pediatric practices:

COVID-19 Economic Injury Disaster Loan (EIDL) Deferment 

EIDL loans were a part of the CARES Act of 2020, and are low-cost loans to assist businesses experiencing a loss in revenue due to the pandemic. In March 2021, the deferment period for existing EIDL loans was extended. According to the Small Business Administration:

  • If you received an SBA disaster loan in 2020, including a COVID-19 EIDL loan, your first payment due date as been extended by 12 to 24 months, depending on your loan.
  • If you received an SBA loan in 2021, including a COVID-19 EIDL loan, your first payment’s due date has been extended by 12 to 18 months, depending on your loan.
  • While your loan will be deferred for 12, 18, or 24 months, the SBA notes that interest will continue to accrue the outstanding balance. Your practice may still apply for an EIDL loan at a 3.25% interest rate at the time of this post’s writing.

Who should apply: practices experiencing a significant loss in revenue that makes paying regular bills such as payroll and rent difficult or impossible. Please consider any outstanding debt before applying for an EIDL loan. Make a debt repayment plan and ask the advice of your accountant or business consultant to make sure an EIDL loan is the right option for your practice.

What are the Targeted EIDL Advance and SBA Debt Relief programs?

The Targeted EIDL Advance is a program that can provide up to $10,000 to businesses in low-income communities who applied for previous EIDL Advance funds and received less than $10,000. The SBA Debt relief program authorizes the SBA to make 6 months of principal and interest payments, including fees, towards 7(a), 504, and Microloans approved until September 27, 2020, even if not fully disbursed.

The SBA is contacting eligible participants directly -- there is no action required if you have previously applied for an EIDL Advance loan or if you were approved for a loan that qualifies for debt relief. The EIDL Advance program is distinct from the EIDL program and has ended as of March 2021. Find out more about the EIDL program and Advance program.

The SBA also offers business advice for small businesses via regional offices and local partners. Practices may deliver medicine, but they’re also critical small businesses in your community -- business advice from an expert could help your practice make smart business choices and recover from revenue loss in 2021. Check if there’s a regional center near you.

More Funding

Your practice may qualify for further loans and funding. The SBA has provided a list of private funding sources, including some for businesses in communities with low-income or minority populations.

Your practice should also check your state’s website for financial assistance and other resources for small businesses. Keywords can include “small business resources” and “coronavirus aid relief”.

Who should apply: If you’re experiencing a significant drop in revenue (enough to make paying regular bills and payroll difficult or impossible) and federal assistance is not enough for recovery, additional private funding may be right for your practice, especially if you work in a targeted area such as in a community with low-income families. Be sure to get the advice of your business consultant and/or accountant before proceeding.

Why It Matters: More than a Loan

Recovery from the economic hit many pediatricians took during the course of the pandemic is a feat that some practices can accomplish alone, but this does not mean you cannot or should not ask for help. In the right circumstances, applying for federal or private loans is the most prudent business decision available. In addition, all practices should take advantage of the Employee Retention Credit refundable tax credits, as it is freely available relief with no associated fees or interest.

Financial recovery will be a long process as families return to your practice for care and advice. There are many steps to take to increase patient volume and practice safe healthcare post-pandemic, but taking the right financial steps now can set your practice up for a healthy recovery. When you’ve laid down the foundation for financial recovery, check out our previous post to learn how to increase patient volume at your practice.

How can your practice increase visit volume?

Allie Squires

Allie Squires is PCC's Marketing Content Writer and editor of The Independent Pediatrician. She holds a master's in Professional Writing from NYU.