The medical aesthetic industry was significantly impacted during the pandemic. Surgical and nonsurgical medical aesthetic practices experienced full and partial shutdowns due to governmental orders, only to reopen subject to suffocating capacity restrictions and sanitation procedures. Luckily, the entire industry still has the opportunity to access significant cash relief in a refundable employee payroll tax credit – the Employee Retention Credit (ERC).
With credits often exceeding the initial payroll tax liabilities, the ERC has already awarded millions of dollars to a broad spectrum of employers, including those in the medical aesthetic industry. Unlike the Paycheck Protection Program (PPP) loans, the ERC was never limited by available federal funds, so any practice that qualifies, and applies, can still find ERC relief.
Launched in March 2020, the ERC remains one of the biggest relief opportunities – up to $26,000 per employee during 2020 and 2021 – available to businesses that have been negatively impacted by the Covid-19 pandemic. Even for those businesses already beginning to recover, employers can retroactively claim the ERC based on hardships experienced during 2020 and the first three quarters of 2021.
Employers should also remember: The ERC is available even if they already received PPP loans, and, businesses that started up after February 2020 may qualify under specific ERC provisions that can provide up to $100,000 in refundable credits in 2021.
What is the ERC?
Introduced in the CARES Act, and intended to incentivize employee retention during the pandemic, the ERC is:
- A refundable payroll tax credit
- Claimed quarterly
- Reducing payroll taxes/producing cash refunds
- Available to both eligible for-profit and not-for-profit employers who retained W-2 employees
Employers in the medical aesthetic industry are typically eligible because government orders restricted their operations.
Common examples include, but are not limited to, orders that:
- Prohibited elective procedures
- Prevented medical device companies from physically entering premises to install/ service devices used in medical aesthetic practices
- Imposed capacity restrictions in waiting rooms or even limited the number of patients permitted to be treated in a day
- Spacing limitations
- Reductions to hours of medical practices to comply with hygiene/sanitation procedures
Note that orders creating qualifying partial suspensions were more common than many employers and tax practitioners realize.
Another way for employers in the industry to be eligible is by showing that their business suffered a reduction in gross receipts.
1. Tax Year 2021 (Q1, Q2 and Q3)
The employer is eligible if the business’s gross receipts are more than 20% down from the gross receipts in the same calendar quarter of 2019.
2. Tax Year 2020 (Q1-Q4)
The employer is eligible if the business’s gross receipts are more than 50% down from the gross receipts in the same calendar quarter of 2019.
Remember, although many other forms of government pandemic relief are depleted, the ERC remains available now. Numerous government orders restricted a myriad of ordinary business operations in the industry – and you may be one of many employers entitled to substantial cash benefits. If you operate a business in the cosmetic and beauty industry, find out if you qualify.
Editor's Note: Frost Law recognizes this credit s unprecedented reach and potential for employers in the medical aesthetic industry who retained W-2 employees throughout the pandemic. While many CPA firms and other professionals are missing this credit entirely, or do not have the time to dedicate to the nuanced analysis required in each case, Frost Law has devoted significant time and resources to understanding the ERC. Frost Law’s dedicated team of attorneys have been working with employers who need this relief.
About the Author
Mr. Frost is a managing partner of Frost Law (Washington, D.C.), a tax law firm focused on Tax, Estate, Business, Litigation & Civil, Bankruptcy, Employment and Family Law. He holds an LL.M in taxation, is a licensed attorney, a certified public accountant, and a certified financial planner®. The Frost Law team provides tax planning advice on a variety of issues, and represents clients in tax collection, tax examination, tax appeal matters pending before the IRS, and in civil and criminal litigation in U.S. Tax Court, U.S. District Court and State Courts.