March 27, 2020

CARES Act provisions—what’s in it for restaurants?

The Coronavirus Aid, Relief and Economic Security Act (CARES) contains a number of provisions specific to restaurants, foodservice establishments and their employees. Here’s a summary of some of what you can expect.

Rehiring/payroll incentives

  • Paycheck Protection Program. Restaurants (and other businesses) with fewer than 500 employees will be able to get unsecured loans for 2.5 months’ worth of payroll costs, based on last year’s average monthly payroll expenses, or $10 million, whichever is less. The program is retroactive to February 15, 2020, to encourage you to rehire employees you may have laid off and may be used for:
    • Salaries or wages
    • Cash tips (or equivalent)
    • Vacation, parental, family, medical, or sick leave pay
    • Severance pay
    • Health care benefits, including insurance premiums;
    • Retirement benefits
    • State or local payroll taxes

The loan covers the period from February 15 to June 30, 2020, and any portion of the loan not forgiven under the SBA Loan Forgiveness program can be carried forward at 4% interest for up to 10 years.

  • SBA loan forgiveness. Any restaurant that receives a loan will also be eligible for loan forgiveness on the amount equal to that spent during the eight weeks after the date the loan processed is funded on:
  • Payroll costs;
  • Interest payments on mortgages (incurred prior to February 15, 2020);
  • Rent payments (on any lease in force prior to February 15, 2020);
  • Utility payments (for any service that began before February 15, 2020).

The amount of the loan forgiven decreases if you have fewer employees than you did a year ago or if you reduced employee pay by 25% or more (as a result of hardship caused by the coronavirus).

Tax breaks

  • Employee Retention Tax Credit. Restaurants that closed or whose business declined 50% or more compared to the same quarter last year due to the coronavirus get a refundable payroll tax credit for 50% of wages paid to employees during the crisis. The credit applies to the first $10,000 of compensation paid, including health benefits, from March 13, 2020, through December 31, 2020. What wages qualify vary somewhat depending on whether you have more or fewer than 100 employees.
  • Qualified Improvement Property. Restaurants will be able to write off costs associated with improving facilities immediately instead of having to depreciate improvements over the 39-year life of the building. (Recall that due to an error in the Tax Cuts and Jobs Act of 2017, the 15-year depreciation on restaurant improvements, known as Quality Improvement Property, was inadvertently left out and the code reverted to an older schedule of 39 years.)

This could increase your access to cash flow by allowing you to amend your prior year’s tax return, while also incentivizing investment.

  • Modifications for Net Operating Losses (NOL). This provides that a loss from 2018, 2019, or 2020 can be carried back five years, and it temporarily removes the taxable income limitation to allow a net operating loss you incurred to fully offset income.
  • Tipped employee wage adjustment. Since table service has been discontinued in most states, and servers are no longer able to earn tips, you can base your payroll costs on the wages you’re currently paying waitstaff for the jobs they’re doing now, instead of the wages plus gratuities they collected waiting tables prior to the COVID-19 pandemic. You can use these adjusted wages when you compute loan forgiveness.
  • Delays in tax filings/payments. The tax filing deadline will be extended from April 15 to July 15, and you can postpone estimated tax payments (both personal and business) until October 15, 2020, with no cap on the amount of payment you postpone. Social Security taxes also are deferred, with half due on Dec. 31, 2021, and the remaining half at the end of 2022.
  • Cap on sick leave expenses. Your sick leave expenses are capped at $200 per day and $10,000 in the aggregate for each employee. Outlays for paid family leave are capped at $200 a day or $2,000 in the aggregate for employees attending to a quarantined child or family member.

Employee benefits

All your employees earning less than $75,000 per year will get a tax credit of $1,200 (that they can request as an advance tax refund if they need the cash). Any employees you’re unable to keep on payroll who qualify for unemployment will get additional payments of $600 per week for four months.

Additional emergency relief

Community Development Block Grants (CDBG)
You may benefit from $5 billion going to nearly 1,240 states, counties, and cities to rapidly respond to coronavirus and the economic and housing impacts caused by the crisis, with $2 billion of that allocated to states and local governments based on the prevalence and risk of COVID-19 and related economic and housing disruption. As this money becomes available, you may be eligible for local grants.

As always, check with your personal tax, finance or personnel experts to verify the listed benefits and how they might apply to you.