What Are ERC-Qualified Health Plan Expenses for Businesses?

July 13, 2023
Dayes Law Firm

Has your business been affected by the pandemic? Over the past few years, millions of employers have furloughed workers, lost revenue, or even shuttered their businesses permanently.

The Employee Retention Credit (ERC) is a government relief program for businesses that struggled due to COVID-19. If you paid qualified health plan expenses for your workers, you may qualify for employee retention credits to help keep your business afloat. 

Can Your Business Claim Health Plan Expenses for Employees?

If eligible employers paid group health plan expenses for employees from March 13, 2020, to December 31, 2020, those expenses count as qualified wages for the purposes of the ERC. This includes amounts paid by you plus the portion of the cost paid for by employees with pre-tax contributions. However, you can only claim up to $10,000 per employee for all calendar quarters during this time.

You can also claim your contributions to health reimbursement arrangements (HRAs) and health flexible spending accounts (FSAs). Contributions to health savings accounts (HSAs) and small employer HRAs (QSEHRAs) don’t count.

Who Qualifies?

Small eligible employers (those with fewer than 100 employees for 2020 or 500 in 2021) can claim health plan expenses as qualified wages even if your employees didn’t work and you didn’t pay them like you normally would.

Originally, employers with more employees couldn’t claim health plan expenses unless they kept paying wages. The IRS reconsidered and now allows large employers to claim these expenses for employees subject to furlough or unpaid leave. If you’re a large employer and you continued to pay your employees, you can only claim health plan expenses if your employees were not providing services to you.

To qualify for the ERC in general, you’ll need to meet one of these two requirements:

  • You had to suspend operations (either partially or totally) because the government told you to close down
  • You had a significant reduction in gross receipts

What does the IRS mean by gross receipts? That depends on whether you’re claiming the ERC for 2020 or 2021.

For 2020, your business must have experienced at least a 50% reduction in receipts compared to the same quarter in 2019. For 2021, the percentage changes to 20%.

Example of a Qualifying Employer

Understanding whether or not you qualify to claim ERC health plan expenses can be a little confusing, so we’ll illustrate a bit more with an example.

Let’s assume John is a small employer who owns a restaurant. During the pandemic, his city ordered him and other restaurants to close to help temporarily stop the virus’s spread.

John loved his employees and didn’t want to fire them, so he decided to furlough them until his restaurant could reopen. He didn’t keep paying their wages, but he did continue paying for their health insurance costs.

John could count the amount he spent on employee health coverage as qualified wages during the time he shut down.

Contact Dayes Law Firm if You Have Questions About the ERC

Not sure whether your health plan expenses qualify for the ERC? Don’t be put off by the prospect of poring over past records. It’s a complicated topic, but determining whether your business qualifies could be well worth the effort.

If you’d like to know more about ERC health plan expenses and how to claim this refund for your business, call Dayes Law Firm at (800) 503-2000 today. Our experienced ERC refund recovery lawyers have helped dozens of businesses file for over $250 million in ERC tax credit claims.