Updates: 4/7/2021
PPP Update: The new deadline to apply for and receive a PPP loan (first or second draw) has been moved to May 31, 2021. The eligibility has been expanded to include some non-profit, tax-exempt organizations.
ERC Updates: The ARP also expanded the 2021 ERC to all four quarters and increased the maximum amount of the credit. Severely* impacted businesses can now also take advantage of both PPP Loans and ERC stimulus programs.
*Consult your CPA on the best course for your restaurant to garner the most financial support possible from all these federal programs
If you’re a small restaurant or business with 500 or fewer employees and you’ve had more than a 20% decline of gross receipts in a quarter compared to 2019, you may be interested in hearing about this latest news regarding the Employee Retention Tax Credit (ERTC). And thanks to the new provision in the law, yes, this applies even if you’ve already applied for the first or second draw PPP loan.
What is the Employee Retention Tax Credit?
The Employee Retention Credit is a refundable, advanceable tax credit for employers equal to 70% of qualified wages that Eligible Employers pay their employees, which includes allocable qualified health plan expenses (1). The ERTC was first designed to encourage businesses to keep employees on their payroll during the COVID-19 Pandemic and is now a way to help businesses that suffered significant revenue reductions from the pandemic.
See full IRS article here:
https://www.irs.gov/coronavirus/employee-retention-credit
How much is the Tax Credit Worth?
According to the new provision, the ERTC is worth different amounts for last year and 2021.
For wages paid between 3/12/2020 and 1/1/2021: the maximum credit a business can claim is 50% of eligible wages, up to $5,000 per employee.
For wages that will be paid between 1/1/2021 and 7/1/2021, employers can claim 70% of qualifying wages of up to $10,000 per quarter. This means that businesses could receive a maximum of $14,000 per employee.
For more details, see:
https://www.uschamber.com/co/start/strategy/coronavirus-employee-retention-tax-credit-guide
Who is Eligible?
Before December 2020, only businesses with 100 or fewer employees qualified for the ERTC, and only those who did not receive a PPP loan.
However, the new provision in the CARES Act via the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020, amended and extended the ERTC (and the availability of certain advance payments of the tax credits). Businesses with 500 or fewer employees qualify if they have experienced a decline in gross receipts by more than 20% in any quarter of 2020 compared to the same quarter in 2019.
Here is more on the new ERTC eligibility criteria provided by the US Chamber of Commerce. See https://www.uschamber.com/co/start/strategy/coronavirus-employee-retention-tax-credit-guide
- Eligibility ends if gross receipts in a 2020 quarter exceed 80% compared to the same quarter in 2019. Basically, this means that you are only eligible until you get to a quarter where you’ve reached at least 80%. So, for example, if your business has a 2020 third quarter where revenue is down 21%, but then your 2020 fourth quarter has revenue up by 81%, then you only qualify up to the third quarter.
- Businesses must have partially or fully suspended all operations in 2020 or 2021.
- Employers may not claim the same employee for this credit and the Work Opportunity Tax Credit for the same period.
- Employers that received a PPP loan and those who receive second draw PPP loans can now also be eligible for the ERTC. However, PPP funds and ERTC cannot be used to cover the same payroll costs.
How do businesses claim this credit?
According to the IRS, eligible employers should report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning the second quarter of 2020. If a company’s employment tax deposits do not cover the credit cost, employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
Employers that may be eligible for the ERTC should talk to their accountants or tax preparers. The IRS is also continually updating their guidance on the ERTC, so check back on the IRS website here, https://www.irs.gov/newsroom/news-releases-for-current-month or contact the IRS for further questions.
Here are some important resources you should check out regarding this topic:
Ask IRS directly: https://www.irs.gov/help/telephone-assistance
Frequently Asked Questions and Answers on the ERTC: https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-general-information-faqs
US Chamber of Commerce on ERTC: http://uschamber.com/ertc
Small Business Resources: https://www.uschamberfoundation.org/reports/coronavirus-response-resources#smallbiz
Also, feel free to check out our earlier article on the Second Draw PPP Loan, here: https://goliathconsulting.blog/2021/01/14/the-second-draw-ppp-loan-the-latest-news-and-next-steps-for-restaurants-and-small-businesses/