Do Restaurants Qualify For Employee Retention Credit?

Restaurants have been among the hardest hit by the COVID-19 pandemic, with many having to close their doors or operate at reduced capacity. In response to this economic crisis, the U.S. government has implemented a range of measures to help businesses stay afloat, including the Employee Retention Credit (ERC). The ERC is a tax credit that is designed to encourage businesses to keep their employees on the payroll, even during times of economic hardship.

While the ERC has been available to businesses since 2020, many restaurant owners are still unsure whether they qualify for this credit. The eligibility criteria for the ERC are complex and can be difficult to navigate, especially for small businesses that may not have access to the resources and expertise needed to understand the tax code. However, there are a number of resources available to help restaurant owners determine whether they are eligible for the ERC and how to apply for this credit if they qualify.

Understanding Employee Retention Credit

The Employee Retention Credit (ERC) is a refundable tax credit for businesses that continued to pay employees while either shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. The credit was initially introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It was later expanded and extended by the Consolidated Appropriations Act (CAA) in December 2020 and the American Rescue Plan Act (ARPA) in March 2021.

The ERC is available to both for-profit and nonprofit organizations, including restaurants, that meet the eligibility criteria. The credit is equal to 70% of the qualified wages paid to employees, up to a maximum of $10,000 per employee per quarter. This means that the maximum credit per employee is $28,000 for 2021.

To be eligible for the ERC, restaurants must meet one of two requirements. The first requirement is that the restaurant had to fully or partially suspend operations during any calendar quarter in 2020 or 2021 due to government orders related to COVID-19. The second requirement is that the restaurant had to experience a significant decline in gross receipts during any calendar quarter in 2020 or 2021 compared to the same quarter in 2019. A significant decline in gross receipts is defined as a decline of 50% or more.

It’s important to note that the ERC is a refundable tax credit, which means that eligible employers can receive the credit even if they have no federal income tax liability. The credit is claimed on the employer’s federal employment tax return, Form 941, for the applicable calendar quarter. Any excess credit can be refunded or applied to future quarters.

In conclusion, the Employee Retention Credit is a valuable tax credit for restaurants that continued to pay employees during the COVID-19 pandemic. Restaurants that meet the eligibility criteria should consider claiming the credit to help offset their payroll costs and improve their cash flow.

Eligibility Criteria for Restaurants

Restaurants may be eligible for the Employee Retention Credit (ERC) if they meet certain criteria. The ERC is a fully refundable tax credit created in response to COVID-19 that helps small businesses keep their employees employed during uncertain times.

To qualify for the ERC, restaurants must meet one of two eligibility criteria. The first eligibility criterion is that the restaurant must have experienced a full or partial suspension of operations due to a government order related to COVID-19. The second eligibility criterion is that the restaurant must have experienced a significant decline in gross receipts.

Restaurants may qualify for the ERC if their gross receipts for a calendar quarter in 2020 were less than 50% of their gross receipts for the same calendar quarter in 2019. Alternatively, restaurants may qualify for the ERC if their gross receipts for a calendar quarter in 2021 were less than 80% of their gross receipts for the same calendar quarter in 2019.

In addition to meeting one of these eligibility criteria, restaurants must also meet other requirements to qualify for the ERC. These requirements include:

  • The restaurant must have been in operation before February 15, 2020.
  • The restaurant must not be a government entity or a business that is owned or controlled by a government entity.
  • The restaurant must not have received a Paycheck Protection Program (PPP) loan that has been forgiven.
  • The restaurant must not have received a Shuttered Venue Operators (SVO) grant.

Restaurants that meet these eligibility criteria may be eligible for the ERC. The amount of the credit is equal to 50% of qualified wages paid to each employee from March 13, 2020, to December 31, 2020, up to a maximum of $5,000 per employee. For wages paid from January 1, 2021, to December 31, 2021, the credit is equal to 70% of qualified wages paid, up to a maximum of $28,000 per employee.

Process of Applying for ERC

The process for applying for the ERC is quite straightforward. The credit is claimed by reporting total qualified wages and related health insurance costs for each quarter on quarterly employment tax returns. However, remember that obtaining this credit requires accurate record-keeping and knowledge of the qualifying periods.

Benefits of ERC for Restaurants

The ERC can be highly beneficial for restaurants, providing them with much-needed financial relief. The funds can be used to cover employee salaries, thereby helping retain staff during periods of slow business or closure.

Common Mistakes Restaurants Make When Applying for ERC

While the ERC is indeed a lifeline for many restaurants, some common mistakes can lead to a denial of the credit. These include not maintaining proper financial records and not understanding the specifics of what qualifies as a “significant decline in gross receipts.”

Other Resources for Restaurants

Apart from the ERC, there are other resources available to restaurants, such as the Economic Injury Disaster Loans (EIDL). These programs can provide additional financial support to keep your business afloat.

Find Out How Much Money You Qualify For, Click Here And Fill Out the Form

Conclusion – Do Restaurants Qualify For Employee Retention Credit?

In conclusion, restaurants do qualify for the Employee Retention Credit. As long as they meet the eligibility criteria. This credit could provide significant financial relief. But it’s important to understand the specific requirements and process of application to take full advantage of this provision.

However, remember, that while the ERC can be highly beneficial, it’s not the only resource available to restaurants. Be sure to explore all the financial assistance programs available to help your restaurant navigate these challenging times. With proper knowledge and resources, your restaurant can weather this storm and emerge stronger.

Remember: You can Qualify For Up To $26,000 Per Employee

FAQs

1. How much can a restaurant claim through the Employee Retention Credit? The amount a restaurant can claim depends on several factors, including the number of employees and the specific period of business disruption due to the pandemic.

2. Can a restaurant that has received a PPP loan still qualify for the ERC? Yes, as of 2021, businesses that received PPP loans can also qualify for the ERC, but they can’t claim the credit on wages paid with the forgiven PPP loan proceeds.

3. How can a restaurant show a significant decline in gross receipts? A significant decline in gross receipts for any quarter is generally defined as a decrease of more than 20% when compared to the same quarter in 2019.

4. Can a restaurant owner apply for the ERC on their own, or do they need professional help? While it’s possible to apply on your own, the process can be complicated. Getting help from a tax professional or CPA could ensure the application is done correctly and maximize the credit received.

5. Can the ERC be claimed for 2020 and 2021? Yes, the ERC can be retroactively claimed for 2020 and 2021, as long as the eligibility requirements are met for those periods.

The Employee Retention Credit can be a valuable resource for restaurants during these challenging times. By understanding the eligibility requirements and the application process, restaurant owners can use this credit to keep their businesses running and their employees paid.

Resources:

  1. Employee Retention Credit under the CARES Act: This is an official webpage from the Internal Revenue Service which provides detailed information about the Employee Retention Credit. It can be used as a reliable source when understanding the regulations and eligibility criteria related to the ERC.
  2. How the Employee Retention Credit can benefit the restaurant industry: This commentary piece from Restaurant Business Online discusses the potential advantages of Employee Retention Credit for the restaurant industry and can be a useful resource when exploring the topic further.

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