These crazy pandemic times have been hard on all of us. But for many small business owners, the stress was multiplied by being responsible for their employees’ incomes.
Thankfully, our government created many relief programs for small businesses, but the constantly changing guidelines, requirements, and nuances can be enough to make the best business people’s heads spin.
As business owners slowly start to put the economic shutdown in their rearview mirrors and rebuild their businesses, they can still qualify for some government assistance.
One of the programs that you can still file for in 2022 is the Employee Retention Tax Credit. While the program has technically closed, businesses can still claim the credit. So your business might be eligible even if you don’t think it is. Don’t let this one pass you by!
The Employee Retention Credit (ERC) allows eligible businesses to claim a refundable tax credit equal to 50 percent of qualified wages paid between March 12, 2020, and January 1, 2021, against specific employment taxes.
Originally developed as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, it is designed to help small and mid-sized businesses continue payroll during the pandemic. The idea was to promote the retention of employees.
Since 2020, there have been a few amendments and changes to the ERC. It was amended by the Infrastructure Investment and Jobs Act to only apply to wages paid before October 1, 2021, except for recovery startup businesses, which can keep the original deadline of January 1, 2022.
The first step for business owners is to determine if they are eligible for the ERC. This is easier said than done, as the eligibility requirements and credits awarded have changed multiple times since the program was initially launched.
The process for claiming Employee Retention Tax Credit has changed now that the program has officially ended. Originally, once an employer established if they were eligible, they would estimate the ERC for that pay period and deduct that from their payroll tax deposit. The employer was required to claim the ERC on Form 941 within 30 days of the end of the quarter. Often, the credit was higher than the tax deposit, so advance payment could be filed with Form 7200 and the excess refunded to the employer.
Even though the program is over, restaurants can still claim employee retention tax credit. The rules state that employers have up to three years after the program’s sunset to file for any quarters they were eligible, even those who received a PPP loan. Applying for ERC looks a bit different when filling after September 30, 2021.
To determine the wages that qualify for the employee retention credit for restaurants, businesses can consider paid wages and compensation subject to FICA taxes and certain qualified health expenses. Qualifying wages must have been paid to employees between March 12, 2020, and September 30, 2021, and the employee must still be employed with the company.
One important note when determining qualifying wages is that no wage expenses funded by a PPP loan can be included. That means it’s beneficial to use PPP loans to cover non-wage expenses or wages that wouldn’t generate any employee retention credits.
The maximum creditable wages per employee in 2020 is up to 50 percent for the first $10,000 of qualified wages per full-time employee per year. That means total payroll costs can drop up to $5000 per employee for the year.
In 2021, the credit jumped to 70 percent for the first $10,000 of qualified wages per full-time employee per quarter. That means that total payroll costs can drop up to $21,000 per employee per year.
Small and mid-sized business owners can include wages paid to all employees, whereas large employers can only include wages paid when employees are not working. The specific requirements are different for 2020 and 2021 and based on records from 2019 for businesses that were in operation at that time.
In 2020, a small employer was a company with less than 100 full-time employees. This number changed to 500 full-time employees in 2021, allowing mid-sized companies to qualify for more wages.
Eligibility for employee retention credit for restaurants can be earned in two ways. First, any restaurant that experienced a full or partial shutdown due to government regulations relating to COVID 19 is qualified. Any government-mandated shutdown of operations will deem your restaurant as eligible.
Another way to become eligible for the ERC is through a significant loss of gross receipts in 2020 or 2021 as compared to the same quarter for 2019. Companies that weren’t in business in 2019 can use numbers from 2020 to compare gross receipts. For 2020, a significant decline is considered less than 50 percent of gross receipts from 2019, while in 2021, it’s considered less than 80 percent.
Don’t assume that just because we’re nearly halfway through 2022 that it’s too late to claim the employee retention tax credit! While the process is slightly different, you still have time. But don’t delay – the window of opportunity expires in 2023 or could expire earlier if funds run out.
Business owners must file Form 941-X for any quarters that wages were paid. The most demanding part of the process is determining which wages qualify, especially for businesses applying for PPP loan forgiveness.
If you’re having a hard time with all this information, we understand. But that’s way too much money to potentially put back into your business to miss out on, just because it’s a convoluted process.
The good news is that the experts at P3 Cost Analysts have helped tons of other restaurant owners in your position get the credits they are entitled to, so we know the ins and outs of employee retention tax credits for restaurants like the back of our hands.
In fact, most restaurants and bars can qualify for the Employee Retention Tax Credit, even those who already took PPP money. So even if you or your accountant think you don’t qualify, it’s worth having our tax experts take a look. We have helped plenty of businesses get money back even when they were sure they couldn’t.
The best part is there is absolutely no risk to you. We only charge a percentage of the money we can get back. So if it turns out you were right, and we aren’t successful, there is no fee. Plus, our turnaround is quick. You will have the results of our findings within two weeks of giving us the information we need, and we can file for a refund immediately after.
In November 2021, the Infrastructure Investment and Jobs Act ended the ERC program sooner than anticipated. This announcement puts September 30, 2021, as the end date for the program, effectively eliminating quarter four from eligibility. The only exception was for Recovery Startup Businesses, which can still claim through the end of 2021.
Many restaurants and other companies had already paid reduced deposits, collected fewer taxes, or even received payments from the IRS. If this is the case for your business, you must repay the advance amounts, deposit the taxes you retained or face a 10 percent penalty.
Do I have to pay back the ERC?
No, the employee retention credit does not have to be paid back.
Can a business be eligible for the ERC and PPP loan?
Yes, but payroll expenses paid for by PPP loans are not considered eligible ERC wages.
Is the ERC only for restaurants?
No. Any trade or business is eligible, plus other organizations such as educational organizations, churches and other religious organizations, nonprofits, and tribal entities.
Are tipped wages eligible for ERC?
Tipped wages are included in qualified wages if they are more than $20 per month and subject to FICA.
Are capacity restrictions considered partial closures?
Yes, any limited capacity or restrictions for on-site dining is regarded as a partial closure.
What is a recovery startup business?
Companies founded after the pandemic are considered recovery startup businesses. This includes restaurants that opened after February 15, 2020, and have less than $1 million in revenue.
The ERC window of opportunity is closing, and the money available will run out, so don’t miss your chance to get your tax dollars back.
P3 will jump through all the complex hoops to ensure that you get back every penny you’re eligible for. Contact one of our tax experts today to get the ball rolling.