According to the Internal Revenue Service, anything restricting business operations during this period could qualify the business for the ERTC.

Restaurants eligible for the COVID-19-related Employee Retention Tax Credit recently received good news as the IRS released new guidance.

Businesses can now claim tips paid by customers in excess of $20 per month as eligible wages for ERTC. Also, businesses can receive the ERTC and Section 45B credit for the same wages.

This is a big development for full-service restaurant operators, many of whom are continuing to learn about how it can help their businesses withstand financial challenges related to the pandemic, says Aaron Frazier, the National Restaurant Association’s director of Healthcare and Tax Policy.

Enacted in March 2020 as part of the government’s Coronavirus Aid, Relief, and Economic Security Act (CARES), the ERTC allowed employers to access up to $5,000 per eligible employee in 2020 and now allows up to $7,000 per eligible employee for each calendar quarter in 2021.

The Association, in partnership with Tri-Merit Specialty Tax Professionals, presented “Maximizing the Employee Retention Tax Credit to put Money Back in Your Business,” a webinar designed to help restaurateurs navigate the ERTC and use it to rebuild, with the help of tax credits and other financial incentives. More than 3,500 registered for webinar access; 1,562 attended live.

Frazier and Tri-Merit Co-founder and Partner Randy Crabtree, CPA, explained:

  • How to identify if your restaurant is eligible for ERTC
  • What to expect from the application process
  • How to maximize tax credits and incentives

The Association originally lobbied members of Congress to pass an ERTC that would help businesses get through an 8-week response period to the coronavirus but then worked to extend the credit for the duration of the pandemic. It was clear the virus was continuing, and many restaurant businesses faced financial ruin.

“Initially, the federal government’s response was to give restaurants a credit so they could retain their employees for what they thought would be a 4-, 6-, or 8-week period,” he said, “but as we’ve all seen over the last 16 months, it had to be expanded and enhanced. We worked with Congress to ensure that restaurants could access this credit as easily as possible.”

Advocating to enhance eligibility

One of the changes is that operators originally deemed ineligible after receiving PPP loans can qualify for the ERTC.

“At first, if you took a PPP loan, you couldn’t take advantage of the Employee Retention Tax Credit,” Crabtree said. “They were mutually exclusive. I'm guessing most of you took a PPP loan, if you were able, in which case it made sense to ignore the ERTC.  It wasn't something on our radar.”

The ERTC was scheduled to expire at the end of 2020, but when the end of 2020 came around, restaurants were still greatly affected and the PPP exclusion was removed.

He noted that if an operator took a PPP loan, the government now will allow him or her to take the employee retention credit, going all the way back to March 13th, 2020, the first date of eligibility. Also, the American Rescue Plan has extended the credit, for now, through the end of 2021.

The two most direct ways to qualify for the ERTC:

1. Your operations were either fully or partially suspended because of orders from a governmental authority because of COVID-19

2. Your business experienced a significant decline in gross receipts during any quarter in 2020 and/or 2021

Crabtree indicated that restaurant owners could also qualify for the credit indirectly—if their supply chain was affected and they couldn’t get food or other materials needed to operate. If their businesses closed but employees remained on the payroll, they could qualify, as well.

Do these sound familiar?

According to the Internal Revenue Service, anything restricting business operations during this period could qualify the business for the ERTC, including:

  • Restricted services
  • Limited turnover of private event rooms
  • Reduced operating hours
  • Reduced capacity due to indoor closures
  • Reduced capacity due to social distancing
  • Inability to turn tables in timely fashion due to sanitation requirements
  • Supply chain issues preventing purchase and delivery of food products

Complete this qualification form to find out if you’re eligible for the Employee Retention Tax Credit.

“If you're a restaurant operator, it's 99.9% sure you're going to qualify at least for a portion of this tax credit, so don't ignore it,” Crabtree said. “You're all swamped, you're going through a secondary pandemic with a lack of staff. Take advantage of this credit, it doesn't have to take a lot of time on your end.”

Download the entire recorded playback of the webinar here