Restaurants are starting to rebound from the effects of COVID-19 and recent legislation introduced by Congress allows restaurants to use the Employee Retention Tax Credit. This credit can generate cashflow of up to $19,000 per employee for 2020 and the first half of 2021, providing needed liquidity and help for the struggling industry.
What is the Employee Retention Credit?
Under the CARES Act, and subsequently extended as part of the Consolidated Appropriations Act (CAA), the Employee Retention Credit (ERC) provides assistance through June 30, 2021 to eligible employers who retained employees during the coronavirus pandemic. The ERC is a refundable payroll tax credit for wages paid (including tips) and health plan coverage provided by an employer whose operations were either fully or partially suspended due to a COVID-19 related governmental order or that experienced a significant reduction in gross receipts.
The CAA has enhanced some of the provisions under the CARES Act, including retroactive expansion of the ERC to include businesses that received a loan under the Paycheck Protection Program (PPP). This provision states that employers who received PPP loans may still qualify for the ERC with respect to wages that are not paid with forgiven PPP proceeds.
For employers who qualify, the credit can be claimed against 50% of qualified wages paid, up to $10,000 per employee for wages paid between March 12, 2020 and December 31, 2020. For 2020, a restaurant with 100 or fewer full-time employees (FTEs) may be able to access a cash refund of the ERC for up to $5,000 per employee.
Employers who qualify in 2021 may claim the credit against 70% of qualified wages paid, up to $10,000 per employee, per quarter. For example, in the first and second quarter of 2021, a restaurant with 500 or fewer FTEs may be able to claim the ERC for up to $7,000 per employee per quarter (a total of $14,000 per employee).
To learn more about what employers qualify for the Employee Retention Credit, click here.