Five Healthcare Tax and Financial Considerations for the Year Ahead
When it comes to the business aspects of healthcare, proactively assessing potential changes throughout the year can prevent organizations from playing constant catch-up and potentially getting some nasty surprises at year-end. Here are five of our picks for tax and financial areas your organization should consider now and in the year ahead.
1. Tax Law Implications
Tax law changes can happen throughout the year and can have a significant impact on your practice and shareholders at both federal and state tax levels. Tax changes can be as simple as modified tax rates or as complicated as making sure that the structure of your organization is the most advantageous for you and your shareholders. It’s important to make sure that you’re working with your tax advisors on a regular basis to stay ahead of the game on pending tax law changes and how they could impact your organization.
Looking to the year ahead, healthcare providers should identify the timing and treatment of capital expenditures. The rules for taking bonus depreciation are set to change soon, which means you’ll need to carefully consider whether to use Section 179 or bonus depreciation. Currently, bonus depreciation for first-year qualified property is still at 100% for assets acquired and put in service before Jan. 1, 2023; however, rates are then set to reduce by 20% each year. Additionally, if a healthcare organization owns real property (e.g., opened a new site, built a medical office building, did a major remodel on a current location, etc.), a cost segregation study may be worthwhile to further accelerate depreciation, maximize deductions, and decrease tax liabilities.
2. Provider Relief Funding and Required Reporting
In response to the COVID-19 pandemic, the U.S. Department of Health and Human Services (HHS) provided direct payments to healthcare providers via the Provider Relief Fund (PRF). These payments were disbursed to healthcare providers who diagnose, test, or care for individuals with COVID and who have healthcare-related expenses and lost revenue due to COVID. Funds received do not need to be repaid as long as the recipients meet the terms and conditions, including a reporting requirement, and include the funds in their gross taxable income.
It’s critical for organizations to review the reporting requirements and to remain compliant with them. If a healthcare provider is noncompliant due to nonreporting, the payment must be returned, and the provider will be excluded from receiving/retaining any future PRF payments. Reporting for PRF Period 2 payments received between July 1, 2020, and Dec. 31, 2020, must be complete by March 31, 2022. Reporting for PRF Period 3 (payments received between Jan. 1, 2021, and June 30, 2021) opens on July 1, 2022, and reporting for PRF Period 4 (payments received between July 1, 2021, and Dec. 31, 2021) opens on Jan. 1, 2023.
Keep in mind, if you received over $750,000 in government assistance funds, there are additional reporting requirements – a specific program audit or a single audit. For funds received by an organization with a calendar year-end of Dec. 31, 2021, these special program audits will be due Sept. 30, 2022.
3. Employee Retention Credit
The Employee Retention Credit (ERC) is a refundable payroll tax credit made available to eligible employers in 2020 and 2021. The credit could be 70% or 50% of the qualified eligible wages per employee (capped at $10,000), depending on the quarter and year in which the employer qualifies and claims the credit.
Many healthcare providers assumed they were not eligible for this credit because they were deemed an essential business and remained open. However, if there was a partial suspension for non-essential services, the provider would still be considered an eligible employer for this tax credit. Though the ERC is not available for 2022, it’s important that you identify and document your ERC eligibility from the past two years, as well as check for additional ERC credit opportunities, in order to maximize the potential opportunity.
4. Schedules K-2 and K-3
Schedules K-2 and K-3 are new 2021 tax forms for partnerships and S corporations to report foreign transactions. However, the most recent guidance from the IRS has clarified that even if partnerships and S corporations don’t have foreign source income, pay foreign taxes, or accrue foreign taxes, they may still be required to file Schedules K-2 and K-3 depending on the shareholders’ individual tax situations.
Entities that don’t file these schedules and don’t take the necessary steps and actions to document their reasons for non-filing could face hefty penalties and fines. The IRS anticipates providing further guidance on the requirements for these schedules in the coming months. Until then, healthcare providers should work with their tax advisor to determine whether they will need to file the new forms.
As the COVID-19 pandemic continues, so does telehealth. A U.S. Department of Health and Human Services study found that the amount of telehealth Medicare visits increased 63-fold between 2019 and 2020, growing from 840,000 visits in 2019 to a whopping 52.7 million in 2020. This increase in virtual and remote services has led to increased complexities arising from potential tax nexus with other states. Each state varies when it comes to income tax reporting requirements, so it is essential that providers review potential out-of-state nexus that may have been created with telemedicine.
Does your organization need assistance with any of the tax planning items noted above? If so, our team of healthcare tax experts is ready to help. Reach out to your KSM advisor or complete this form.
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