Employee Retention Tax Credit

Though the national participation rate has been low, restaurants can and should still take advantage of the employee retention tax credits this season. According to Nation’s Restaurant News, ⅓ of owners have applied for ERTC programs though they can receive a credit of either 50% or 70% of eligible wages. 

NRN conducted a survey revealing that only 40% of business owners have leveraged tax programs related to COVID-impacted businesses. They cited confusion about qualification and application processes are their primary reason for not participating. However, it’s not too late.

Employee retention tax credits have been part of the COVID-impact alleviation initiatives across the country, from the original federal Employee Retention Credit to state-specific policies. The ERC policy has since been limited due to the November 2021 Infrastructure Investment and Jobs Act, but employers may still use it during the current tax season. 

According to the IRS, employers may still retroactively apply the Employee Retention Credit to wages paid before October 1, 2021. To claim the credit, eligible employers must report their total qualified wages and health insurance costs on the quarterly employment tax returns. 

Eligibility is determined by:

  1. If they experienced a full or partial shutdown as a result of government orders (spacing and capacity restrictions usually satisfy this requirement)
  2. If they experienced a significant decline in gross receipts (50% in 2020 reduced to 20% in 2021)
  3. If they started a new trade or business after February 15, 2020

In 2021, New York City launched a $35 million Restaurant Return-to-Work Tax Credit initiative to increase hiring for COVID-affected restaurants, with up to $5,000 in tax credits and a $50,000 max per business. Restaurants can claim the 2021 tax credit for this season’s NYS tax returns, if the business had a net employee increase of at least one full-time employee between April and December 2021. 

Companies that utilized the Paycheck Protection Program (PPP) and Restaurant Revitalization Fund (RRF) programs are now eligible to claim the ERTC. Though organizations that received PPP were not initially permitted to claim ERTC at the time the CARES act was revoked, this statutory prohibition was removed in December 2020 and underscored by the IRS in August 2021. 

  • Subscribe to our latest insights

Are you capital raise ready?