Articles
January 21, 2022

What ERTC changes mean for the restaurant industry

Association policy expert Aaron Frazier and TriMerit co-founder Randy Crabtree explain the credit’s tax implications.

ERTC was designed to help employers retain employees and pay for group health benefits.

When Congress approved the $1.2 trillion bipartisan infrastructure package last November, the new spending was funded in part by an early termination of the COVID-19 Employee Retention Tax Credit. 

Suddenly, restaurants and other businesses could no longer access ERTC for wages they paid Oct. 1 to Dec. 31, the 4th quarter of 2021. It was another blow to struggling operators.

Questions surrounding ERTC

The ERTC, enacted in March 2020, allowed employers to claim up to $5,000 per eligible employee in 2020, and up to $7,000 per eligible employee for each calendar quarter in 2021. The credit was designed to help them retain employees during economic uncertainty and pay for group health benefits.

Big questions for restaurateurs centered around how they could successfully claim the first three calendar quarters of ERTC in 2021, and what tax compliance issues they’d need to be aware of for 2022 filings.

To help answer those questions, the National Restaurant Association, in partnership with TriMerit Specialty Tax Professionals, held a webinar in December addressing the issue. Aaron Frazier, the Association’s director of Health Care & Tax Policy, and Randy Crabtree, TriMerit’s co-founder and partner, discussed:

•    Early termination of ERTC for the 4th quarter of 2021
•    Tips for applying for ERTC for eligible calendar quarters, 2021 and 2020
•    Compliance issues for the year ahead
•    Tax implications, because businesses can't use normal payroll deductions on eligible wages for ERTC.

Frazier told attendees that the termination of the 4th quarter of ERTC was inserted into the bipartisan infrastructure bill at a time before COVID-19 variants had emerged and the small business recovery seemed back on track. He also noted that hundreds of thousands of operators who’d applied for the credit hadn’t yet received their refunds. Immediately after the bill became law, the Association wrote to the Treasury Department, asking them to:

1. Speed the processing of ERTC payments so that the backlog from 2020 and first three calendar quarters of 2021 would be completely resolved by year-end 2021.

2. Allow small businesses to defer 4th quarter federal income tax payments due Jan. 15, 2022, until July 15, 2022.

3. Safeguard all deferred 4th quarter federal income tax payments from any penalties or interest. 

How to handle 2021 filings

Crabtree told the group that the IRS decided in early December to extend the time allotted to catch up on payroll tax deposits not yet made. The agency further stated that if an employer hadn’t yet made his or her payroll tax deposits, they could keep that money until the due date of their payroll tax deposits. If an employer caught up on all payroll taxes by the due date, they wouldn’t be penalized.

The 2021 filing could be more challenging than 2020 because restaurants would probably be filing for ERTC before they file tax returns, he added. “Bottom line, they’ll probably have to report this as additional taxable income or reduce expenses by the amount of the credit on their income tax return.” 

Crabtree recommended ERTC program participants talk to their tax advisors for direction.

Download the entire webinar presentation