It has been an especially difficult couple of years for restaurants and hotels. The year 2020 was...
COVID-19 Restaurant Recovery with ERTC
Many restaurant owners suffered enormous losses due to the disruption of regular operations caused by the COVID-19 pandemic. The loss of revenue was severe for many businesses, while some suffered to the extent of severe downsizing or complete closure.
To assist the private economic sector, Congress introduced and implemented three vital acts to help steady business operations for franchise restaurants, helping them avoid total liquidation.
Measures Taken Help with Restaurant Recovery
The CARES (Coronavirus Aid, Relief and Economic Security) Act was the first to be passed by Congress to support franchisees impacted by the pandemic. The Employee Retention Tax Credit (ERTC or ERC) was introduced as part of the CARES Act. Essentially, the Act served to give tax credit refunds to business owners who continued to pay their employees and did not cut down their wage bills despite COVID-related hindrances.
Following the CARES Act, the Consolidated Appropriations Act (CAA) and American Rescue Plan Act (ARPA) were also introduced to sustain the struggling private sector. However, due to a lack of clarity and understanding, many restaurant business owners failed to capitalize on the benefits these Acts offered, missing out on significant amounts of credit.
Who Qualifies to Claim the Employee Retention Tax Credit?
Franchised setups are most likely to qualify for the Employee Retention Tax Credit, as these are predominantly the ones impacted by the changes happening in the market due to COVID-19. Prominent examples would be restaurants, bars, or salons.
The rules concerning ERTC eligibility have been modified since their establishment in light of CAA and ARPA. In 2021, these acts increased the cap on maximum wages eligible per quarter. Drawing a parallel to 2019, if an employer has 500 or below full-time employees working for them compared to the same quarter in 2019, all their wages would be eligible for a credit refund.
Requirements for a franchisee to qualify for the ERTC under ARPA are dependent on:
- A business showing a 20% or above revenue decline compared to the same quarter in 2019
- A business is partially or completely shut down due to government-mandated restrictions
This is a change in eligibility compared to the CARES Act of 2020 and the CAA of 2020, where businesses with 100 employees or less needed to show at least a 50% or greater decline in revenue to be eligible for the Employee Retention Credit.
Meeting the earlier requirements ensures that a franchisee is eligible for 70% credit on qualified wages, which caps off at $10,000 per quarter for the entirety of 2021. New businesses started after February 15, 2020, have been acknowledged to require more support and can receive a credit of up to $50,000.
How ERTC Compares Against Other Programs
If a certain number of wages a franchisee pays for is covered by the Paycheck Protection Program (PPP), they cannot be included in receiving the benefits of the ERTC. Similarly, wages catered to by the Families First Coronavirus Relief Act (FFCRA) also cannot qualify for the ERTC.
A certain franchise owner recalls how he was not aware of the benefits of the ERTC and PPP incentives. Once he sought professional help and could take full advantage of these programs, his business remained sustainable despite the economic challenges that came with COVID-19.
Franchisees, in general, have largely missed out on the benefits these programs offer due to a lack of awareness. Many businesses could have avoided closure or severe losses during the pandemic phase if timely professional help had been sought and these federal tax incentives had been rightly used.
Misinterpretations Regarding the Employee Retention Tax Credit
Numerous forms of misinformation are widespread amongst the public when it comes to the ERTC. To help you clear up any misconceptions you may have developed regarding the ERTC, we have put together some of the most common false ideas people have.
Businesses opened in 2019 are ineligible for ERTC
This is a common misinterpretation franchisees have regarding the ERTC. Businesses established in 2019 can select the quarter they started working in as the basis for their ERTC application. The revenue generated in said quarter can then be compared to the current year’s corresponding quarter to get a percentage value of losses incurred by the franchise.
However, calculations regarding the Employee Retention Credit: eligibility checking, and application submission can be complicated. Therefore, getting professional consultation is the best option for business owners who are unsure of their standing regarding the ERTC.
Restaurants qualify for the ERTC only if completely shutdown
Any form of disruption to the regular operations of a business due to COVID-related conditions can mandate ERTC eligibility. A complete shutdown of a business is only one instance of scenarios that validate ERTC applications.
The partial shutdown, limitation of the workforce or operating hours, disruption in the supply chain, or loss of revenue are a few of the many conditions that potentially make a franchise eligible to claim the ERTC.
A business should have 500 employees or below.
This is a common misconception amongst business owners regarding ERTC eligibility. Employee Retention Tax Credit refunds have a different manner of counting individuals covered by a wage bill than the Paycheck Protection Program.
Business owners are better advised to look into details of employee eligibility criteria regarding the ERTC to ensure they can get maximum benefits from their ERC claim.
Non-profit organizations cannot claim ERTC
Non-profit institutions like hospitals can claim ERTC. A certain amount of money can be filed for each employee in such organizations.
Steadying Your Restaurant With ERTC
The ERTC has certainly been of astronomical value in supporting businesses struggling with revenue generation. Many business owners claimed this federal tax incentive to keep their businesses afloat and profitable during the pandemic.
However, a good chunk of the private sector has been unable to use the ERTC, even ERTC for restaurants, due to misinformation and fake news regarding the incentive. If you are a business owner still suffering from losses caused by the pandemic, seek professional help and apply for COVID-19 restaurant recovery with ERTC as soon as possible.
If this is your first time hearing about the ERTC program, don't be afraid to get started!
If you've heard of this opportunity but don't know how to get started, don't wait any longer! Call us at 909.724.4401 today and get the help you need.