ERC for Restaurants
The pandemic restrictions left most people craving for their favorite meals and while the recipe recreation fad has somehow satiated this desire, still, nothing beats the ambiance and the food made by unknown hands at your local diner or restaurant. Unfortunately, as uncertain as the end of the pandemic, is the survivability of these restaurants.
The good news is, the government, through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, established programs for pandemic-stricken businesses like the expanded Economic Injury Disaster Loan (EIDL), the Paycheck Protection Program (PPP), and the Employee Retention Credit (ERC), which were all aimed at keeping businesses afloat and maintaining employment.
In contrast to the EIDL and PPP which were loan programs implemented by the U.S. Small Business Administration, the Employee Retention Credit was designed to afford employers with a refundable tax credit on qualified wages.
As the restaurant industry was among those that were gravely affected by COVID-19 restrictions, restaurant owners can avail of the ERC for qualified wages paid to full time employees from March 13, 2020 to September 30, 2021 (December 31, 2021 for Recovery Startup Businesses). Furthermore, you can retroactively file your claims within three (3) years from the program’s termination.
The employers qualified for the program are determined by any of the following factors:
- Businesses that were fully or partially suspended or had to reduce hours due to government restrictions or orders (Government Mandate Test);
- Businesses that had a significant decline in gross receipts (Gross Receipts Test).
Here are five (5) ERC quick bites that will come in handy when you file your claims.
Evaluate Your Situation When Determining Eligibility.
Finding out if you are an eligible employer is the first step and evaluation is on a case-by-case basis. For restaurants, circumstances that can be considered as partial suspension, include (but are not limited to):
- Shortened operation hours due to government-mandated curfew;
- Reduction of seating capacity or any modification in operations that has a nominal effect on the restaurant’s business operations (otherwise it is not considered partial suspension);
- Partial suspension of branches in a state due to a government order therein, qualifies an employer as eligible nationwide.
PPP Loans and RRF Are Not Included in the Definition of Gross Receipts.
Meanwhile, when determining eligibility under the gross receipts test, PPP loans and Restaurant Revitalization Funds (RRF) obtained should not be included in the definition of gross receipts.
Review Aggregation Rules.
You must also review aggregation rules since all entities that are treated as a single employer under the Internal Revenue Code are considered one employer for purposes of the ERC.
Tips Are Treated As Qualified Wages.
The Internal Revenue Service (IRS) clarified in Notice 2021-49 that cash tips treated as wages under the Internal Revenue Code are treated as qualified wages if all other requirements for the ERC are met. Under the said Code cash tips of $20 or more in a month are considered as wages paid by the employer. Thus, cash tips amounting to $20 and above are qualified wages with respect to ERC claims.
You Cannot “Double Dip.”
Wages qualified for the ERC cannot be included in calculations for other tax credits like the Work Opportunity Tax Credit (WOTC) and the Families First Coronavirus Response Act (FFCRA) tax credit in accordance with the IRS’ “no double dipping” rule.
Similarly, small businesses that received a PPP loan can only file a claim for ERC if their loan forgiveness application was not approved.
With plenty of cash benefits to tap, the amount of requirements and documents that need to be reviewed can be too much to swallow for some business owners. At MBE CPAs, we have accounting and business tax experts who will help you realize your financial goals and make the most of the ERC and other cash benefits provided by the government. Contact us today!