Employee Retention Credit For The Travel Industry: Supporting Travel Industry Recovery

The travel, hospitality, and tourism industries faced immense challenges due to COVID-19. Travel restrictions, event cancellations, and consumer avoidance decimated revenues. The Employee Retention Tax Credit provides substantial relief to help affected employers retain staff through business declines. This article explores how travel companies can tap into these credits.

Overview of the Employee Retention Credit for the travel industry

The Employee Retention Credit (ERC) was introduced by the CARES Act in March 2020 to incentivize employers to keep employees on payroll through pandemic challenges. It is a refundable tax credit claimed against payroll taxes based on qualified wages paid. Key attributes include:

  • 50% credit on up to $10,000 of eligible wages per employee for 2020. Rises to 70% credit on $10,000 per quarter in 2021.
  • Applies to qualified wages paid from March 13, 2020, through December 31, 2021.
  • Eligibility requires a 20% or greater decline in gross receipts compared to the same quarter in 2019.
  • Refundable credit offsets employer portion of payroll taxes. Excess credits get refunded.

This powerful credit enables travel employers to recoup meaningful payroll costs during business declines.

Travel Industry Disruptions

COVID-19 devasted travel demand and revenues across segments:

  • Air carriers faced plunging passenger volumes as travel was restricted.
  • Hotels and lodging suffered from record low occupancy and bookings as events were canceled and leisure travel avoided.
  • Rental car companies had huge drops in reservations as travel ground to a halt.
  • Cruise lines docked fleets as consumer fears escalated.
  • Travel agencies and tour operators had little business as client travel plans collapsed.
  • Restaurants and retailers in airports, hotels, attractions, and destinations saw patronage evaporate.

These severe disruptions enable travel employers to qualify for substantial retention credits.

Qualifying Criteria

Two central criteria can make travel companies eligible for the ERC:

  1. Experiencing a full or partial suspension of operations during any 2020 or 2021 quarter due to a COVID-19 governmental order.
  2. Suffering a decline in gross receipts of more than 20% in a 2020 or 2021 quarter relative to the same 2019 quarter.

Travel employers frequently qualify under both criteria. Governmental restrictions suspending travel clearly impacted operations. And near elimination of travel demand drove massive revenue declines.

Quantifying COVID-19 Impacts

To maximize ERC potential, travel companies need to comprehensively measure COVID-19 impacts across all facets of their business:

  • Determine periods of full or partial suspensions of operations, services, or travel offerings.
  • Identify all sources of revenues. Calculate total gross receipts for each quarter.
  • Compare gross quarterly receipts in 2020 and 2021 to the same quarters in 2019.
  • Identify all quarters where decline thresholds exceeding 20% were met.
  • Compile evidence such as occupancy data, booking reports, revenue metrics, and cancellation support to prove declines.
  • Analyze impacts for the entire quarterly period, not just a single month.

Assessing enterprise-wide suspensions and revenue changes allows capturing the full depth of COVID-19 disruptions.

Claiming the Credit

The process for travel companies to claim the ERC involves:

  • Calculating qualified wages paid to employees during quarters that met eligibility criteria.
  • Reporting qualified wages and health expenses on IRS Form 941 quarterly payroll tax returns.
  • Applying credit amounts to offset employer payroll taxes due.
  • Submitting IRS Form 7200 to receive advance payment of excess credits above taxes owed.
  • Reconciling any advance credits on subsequent Form 941 filings.
  • Amending prior 941 returns to claim newly qualified ERC amounts from preceding quarters.

Meticulous documentation is vital to support the credit claimed. Failing to substantiate eligibility or credit amounts commonly triggers IRS denial of ERC refunds.

Qualified Wage Rules

Complex rules govern what wages qualify when computing ERC amounts:

  • For employers with over 100 full-time staff, credits only apply to wages paid to employees not providing services.
  • Small employers (100 or fewer full-time employees) can claim credits on all employees’ wages, even for hours worked.
  • Credit calculations cannot include wages exceeding $10,000 per employee for a quarter.
  • Qualified health plan expenses can be added to credit determinations.

Travel employers need to carefully apply qualified wage parameters when claiming credits.

Maximizing Relief

Travel companies can take several steps to capitalize on ERC benefits:

  • Thoroughly review financial records to identify all potential qualifying quarters based on suspensions and revenue declines.
  • Correctly classify as a large or small employer to apply the right qualified wage thresholds.
  • Scrutinize payroll data to identify qualified wages paid during eligible quarters.
  • Claim credits on Form 941 promptly for all applicable quarters.
  • Amend prior Form 941s to claim newly qualified ERC amounts.
  • Coordinate credits with any PPP loan forgiveness applied for.
  • Develop protocols for ongoing tracking and claiming of credits.

Proper compliance and planning enable the optimization of substantial relief from this valuable program.

Employee Retention Credit for the Travel Industry – Conclusion

COVID-19 devastated the travel industry. The generous ERC provides crucial assistance for retention and recovery. Travel employers that experienced material pandemic impacts should quantify business suspensions and declines, calculate qualified wages accurately, and claim all entitled credits. This relief can help stabilize travel companies as the industry slowly recovers.

Frequently Asked Questions

Q: Which travel companies qualify for the ERC?

A: Airlines, hotels, rental car agencies, travel agencies, tour operators, cruise lines, airports, travel retailers, and restaurants can potentially claim the credit.

Q: How do travel companies qualify for the credit?

A: By experiencing COVID-19-related suspensions of operations or by meeting certain gross receipts decline thresholds compared to 2019 quarters.

Q: What travel services support eligibility?

A: Reductions in air travel, hotel stays, car rentals, cruises, packaged travel, and retail and restaurant activity can contribute to qualifying.

Q: How are qualified wages determined for travel employers?

A: Rules differ based on number of full-time employees. Large employers can only claim non-working staff wages, while small employers can claim all staff wages during eligible periods.

Q: How is the credit claimed by travel companies?

A: Qualified wages and health costs are reported on IRS Form 941 payroll tax returns, either quarterly or via amended returns. Credits offset taxes owed, and excess credits are refunded.

Helpful Resources

  • IRS Form 941 Instructions – Claiming Employee Retention Credits
  • US Travel Association ERC Guidance for Travel Businesses
  • AHLA Primer on Pandemic Relief for Hospitality and Lodging
  • AICPA Resources on COVID-19 Relief Programs
  • IATA Updates on Government Relief Measures

Consult a tax advisor on eligibility, documentation, and claiming of credits based on COVID-19 travel industry impacts.

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