Why Your Restaurant Qualifies for the Employee Retention Credit
Does the acronym “ERC” ring a bell?
It stands for: Huge Money On The Table Waiting For You To Grab.
Just Kidding, ERC stands for Employee Retention Credit.
Depending on a few qualifying criteria, the Employee Retention Credit can mean A LOT OF CASH on the table to grab for your business.
Especially if you’re a restaurant business owner.
If you own a restaurant, we’re 99.9% sure that your business is eligible to receive a cash refund to the tune of tens, or maybe hundreds of thousands of dollars.
From who and why?
In this blog post, we’re diving into the Employee Retention Credit for restaurants and help you determine whether your business qualifies for tens of thousands of dollars in refunds.
Let’s get that check!
What is the Employee Retention Credit?
First things first, let’s discuss what the Employee Retention Credit is.
In an effort to help small businesses after COVID-19, the U.S. government released The Coronavirus Aid, Relief, and Economic Security (CARES) Act that included various relief programs, loans, and grants for small business owners.
The Employee Retention Credit is part of that relief program, and is essentially a refundable tax credit that you can claim against certain payroll taxes accumulated in 2020 and 2021.
It’s similar to Paycheck Protection Program (PPP), but better, because you won’t have to pay back, ever!
For 2020, the Employee Retention Credit (ERC) offers qualifying restaurants and other small businesses cash back for up to 50% of employee salaries paid from March 13th to December 31, 2020, up to $10,000 of qualifying wages, per employee, annually.
For 2021, the credit offers a much higher cash back of up to 70% of salaries paid. Instead of the qualifying wage limit of $10,000 per employee annually, the 2021 calculation is performed quarterly with a max of $10,000 of eligible wages per employee, per quarter.
Oh, and Tips reported as wages also count for the calculation.
This can mean tens of thousands, if not hundreds of thousands of dollars in free cash for your restaurant, simply for being a restaurant with paid staff during COVID-19.
Does my Restaurant Qualify for the Employee Retention Credit?
The answer is a resounding, “yes”!
Restaurants are a unique industry in which most every single business qualifies for the Employee Retention Credit.
If your restaurant had to shut down, restrict operations to takeouts and doorstep delivery, or limit capacity for any period of time during 2020 and 2021, and you paid employees during that time, then your business qualifies for ERC, regardless of the revenue earned!
Additionally, If you had to downsize employees and limit operation capacity to maintain social distancing guidelines at any point in 2020 or 2021, again, you qualify for ERC, regardless of revenue.
See? We told you we’re 99.9% sure!
If you’d like to solidify the other 0.01%, here’s a list of the qualifying criteria you need to hit:
- Your business must have less than 500 employees.
- Your business experienced a partial or total shutdown during 2020 or 2021 i.e, it was limited by commerce, inability to travel, or restricted group meetings.
- You must have at least one employee
- Your business must have begun operations before February 2020.
- You were forced to cut capacity, limit hours of operation, or shut down in 2020 or 2021 due to city, county, or state regulations.
- You made 50% less revenue in a specific quarter in 2020 than you did in the same quarter in 2019.
- You made 20% less revenue in Q1, Q2, or Q3 of 2021 than you did in the corresponding quarter in 2019.
- You made 20% less revenue in a preceding quarter in 2021 than you did in the same quarter in 2019. (If you are analyzing Q2 2021 and Q2 2021 vs Q2 2019 revenue does not qualify, you can still get the credit for Q2 2021 if the preceding quarter qualifies, meaning Q1 2021 vs Q 2019)
Based on these criteria, does your restaurant qualify for the Employee Retention Credit?
If it does, congratulations! It’s time to get your money back from the IRS while funds last.
How Much Money Can I Get Back for My Restaurant?
The amount of money your restaurant can receive from the Employee Retention Credit will depend on your staff strength, and a few other factors.
The more employees that you paid during this time, the more your refund amount will be from the IRS.
Retail and hospitality businesses can be granted up to $5,000 per employee for 2020 (calculated retroactively), and up to $7,000 per employee, per quarter for 2021.
As an example, if you have 5 employees that means your business could earn up to $130,000 back in tax credits!
Can I still receive the Employee Retention Credit if I got PPP money?
You can still claim the ERC credit, however, any wages that were paid with PPP proceeds are not eligible for the ERC credit (no double dipping).
Can I Receive the Employee Retention Credit if I Got RRF Money(Restaurant Revitalization Fund)?
This is a common question we get among our restaurant clients – can you receive the Employee Retention Credit if you already took advantage of the Restaurant Revitalization Fund?
A lot of restaurants got the RRF during COVID-19 for immediate relief. Just like the PPP, any payroll expenses allocated to RRF funds are not eligible. However, the good news is that you can get both the ERC and the RRF if you claim the payroll costs for the ERC first, and then use all your leftover costs to allocate towards the RRF.
As long as Employee Retention Credit funds are available, you are qualified to participate in both programs!
Can I still receive the Employee Retention Credit?
As of writing this blog on November 5, 2022, you absolutely can.
The deadline to amend and claim the employee retention credit for Q2, Q3 and Q4 of 2020 has been extended to April 15, 2024, and the deadline to file amended returns for 2021 has been extended to April 15, 2025.
The Employee Retention Credit is done retroactively, meaning your experienced restaurant accountant will go back and resubmit your payroll taxes from 2020 and 2021.
Until funds run out, the ERC money is yours for the taking.
So what happens next?
Get in touch with your restaurant accountant and get the ball rolling.
There is very little that you need to do as a business owner, as the paperwork will fall on your accountant.
If you don’t have a restaurant accountant you are happy with, you can book a free call with one of our accountants using this easy calendar.
We’ll be more than happy to help answer any questions you have, and hopefully apply to get your restaurant tens of thousands of dollars back in cash from the government.
There’s big money on the table for your restaurant!
Will you take it?