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How Restaurants Can Benefit from the Employee Retention Credit

February 01, 2021

Restaurants have been hit hard by the COVID-19 pandemic but fortunately the CARES Act offers a variety of economic relief measures, including the employee retention credit. Here’s what you need to know.

Are you a restaurant owner looking for economic relief amid the ongoing COVID-19 pandemic? The Coronavirus Aid, Relief and Economic Security (CARES) Act provides a number of economic relief measures, including the employee retention tax credit (ERTC). The ERTC has been enhanced by the latest stimulus package, the Consolidated Appropriations Act, signed into law December 27, 2020. Find out if you can take advantage.

What is the employee retention credit?

Read our blog, Changes to the Employee Retention Credit. In a nutshell, the ERTC is a refundable tax credit against certain employment taxes (Social Security, Medicare, etc.) of qualified wages an employer pays to its employees.

What has changed?

The CARES Act stipulated that businesses could take advantage of either the PPP or the ERTC, but not both. The new relief act retroactively eliminates this limitation.

Also, the ERTC has been enhanced under the new act. For 2020, the credit covers up to 50% of qualified wages paid by the employer—up to $10,000 in wages or health care expenses per employee (paid between March 13 and December 31, 2020), for a total available credit of $5,000 per employee. For 2021, the credit covers up to 70% of eligible wages paid by the employer—up to $10,000 per employee per quarter for the first two quarters of 2021, for a total available credit of $14,000 per employee.

The Relief Act also increases the threshold used to determine large employer status to an employee count of more than 500 (it was previously more than 100).

In addition, originally set to expire on January 1, 2021, the new act extends it to June 30, 2021.

How can restaurants benefit?

Restaurants can benefit greatly from the ERTC. If you were not eligible to consider the ERTC in 2020 because you took a PPP loan, now is the time to benefit from both!

The increased threshold will expand the number of restaurants eligible to claim the ERTC for all wages paid to employees (and this includes wages paid to employees who are providing services). Additionally, qualified healthcare expenses would count as wages as well.

How do you claim the credit?

We are still awaiting guidance from the IRS on how PPP borrowers can retroactively apply for the ERC. For restaurants looking to claim the credit in 2021, they can apply as part of their quarterly payroll tax filings and have the option to request payment for the credit in advance of the quarterly payroll tax filing to realize this additional stimulus cash flow sooner.

We can help you make the most of the ERTC. Contact us today.

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