Navigating COVID-19 has been complicated for all businesses and particularly difficult for those in the restaurant industry, given inconsistent mask mandates, spike in Delta variant cases, questions surrounding requirements for employee and patron vaccinations, as well as labor and supply shortages. One silver lining, however, has been the Employee Retention Credit (ERC), but questions still remain about this tax incentive and its status as a COVID-19 government relief program. Where are we now with the ERC and which businesses still qualify?
If your restaurant business is currently or was previously impacted economically by COVID-19, you may be eligible to take advantage of this credit. While there remains general industry-wide confusion about the ERC’s operative and computational rules, intricate time frames thereof and how it interacts with other COVID-19 economic relief programs, it’s important to be aware of the ERC and how it could potentially provide financial relief and support to your business. The following information summarizes the availability of the ERC for restaurant employers and provides general awareness of the updated qualifications and financial benefits.
What is the Employee Retention Credit?
The ERC is an employer federal payroll tax credit based on wages paid (including tips) per quarter, after March 12, 2020 and before January 1, 2022, by an employer whose business operations:
- Were fully or partially suspended due to a COVID-19 related governmental order; or
- Experienced a significant reduction in quarterly gross receipts (>50% in 2020, >20% in 2021) as compared to the same quarters in 2019.
How Much is the Employee Retention Credit?
The maximum credit available is $33,000 per employee, separated into five separate periods:
- 50% of wages (including employer paid health plan expenses) per employee up to $10,000 paid from March 13-December 31, 2020. The maximum credit is $5,000 per employee.
- 70% of wages (including employer paid health plan expenses) per employee up to $10,000 paid in each quarter in 2021. The maximum credit is $7,000 per employee per quarter (i.e., $28,000 in 2021).
Are Restaurant Employers Eligible for the ERC if They Received a PPP Loan or Other COVID-19 Economic Relief?
Yes. The ERC has been made widely available to restaurant businesses, regardless of having received a PPP loan or other COVID-19 federal government grants. However, wages cannot be included to benefit more than one program or federal wage credit, meaning no “double dipping” on employee wages. Careful planning and wage “mapping” analysis can successfully maximize the benefits of the ERC across other overlapping federal wage programs and credits.
Can I Claim the ERC for Prior Quarters?
Yes. An Eligible Employer that did not claim the credit on an originally filed Form 941 may file a Form 941-X for the relevant calendar quarters in which the employer paid Qualified Wages any time before the statute of limitations on the credit or refund expires. Generally, this is three years from the date the original Form 941 was filed.
Are There Other ERC Eligibility and Computational Matters to Consider?
Yes. There are an abundance of ERC nuances, qualifying criteria and limitations to navigate to understand whether a restaurant business qualifies as an Eligible Employer and has Qualified Wages. Some considerations that impact the analysis include:
- The average number of full-time employees employed during 2019;
- U.S. businesses under common ownership or control (>50% “vote or value”) requiring aggregation as a single employer;
- Whether the business started during 2019;
- Whether the business started after February 15, 2020;
- Acquisitions of units during 2019, 2020 or 2021; and
- The timing of submission of PPP loan forgiveness application(s).
We’re Here to Help
The ERC is available to most restaurant businesses and provides a generous COVID-19 economic relief benefit that should not go overlooked. If your business has not yet captured the credit or evaluated qualification, it’s not too late. Bennett Thrasher’s Tax professionals can provide ERC analysis, advisory and consultation for your business. To learn more about our services, contact Betsi Barrett, Chris Frederick or Tim Watt by calling 770.396.2220.