In these uncertain times, our favorite restaurants have faced unimaginable challenges. The COVID-19...
Restaurant Owner? Do Not Miss Out On Employee Retention Tax Credit
Restaurant owners struggled to make ends meet in the early pandemic stages. Mass shutdowns and other preventive measures like social distancing due to COVID-19 resulted in significant drops in revenue for these stakeholders. Therefore, the Payment Protection Program was like a breath of fresh air for these businesses.
Business owners could obtain credit equivalent to 2.5 times or more their approximate monthly wage bills in PPP's first phase, while amounts up to 3.5 times more than approximate monthly wage bills were rolled out in the second phase. Overall, many franchise owners were able to receive 3 to 5 times more than their restaurant's annual earnings, which helped keep their businesses stable during the pandemic.
The Employee Retention Tax Credit incentive is another measure taken by Congress to stabilize the private sector during the COVID-impacted years. Introduced as part of the CARES Act, ERTC could initially not be claimed alongside PPP. This led to most owners missing out on ERTC. However, later changes allowed the claim for both benefits by an owner, provided that certain requirements were being met.
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ERTC, particularly, is a successful incentive considering the prolonged eligibility periods that come with it: March 2020 to mid-2021. This, combined with the generous credit ERTC offers, can see restaurant owners bag up to 4-5 times the credit of their annual revenue.
Due to a lack of details and widespread misinformation, many franchisees missed out on the benefits of ERTC, especially ERTC for restaurants. But the damage remains repairable: read this article to understand what steps can still be taken if you didn’t claim your Employee Retention Tax Credit.
A Scenario To Elaborate On
The following detailed, numbers-based examples will shed light on how significant ERTC can be for a restaurant owner.
Consider a restaurant that makes approximately $2.5 million through the provision of its services in the year 2021. After all costs like labor, food supplies, or rent have been taken care of, profit revenue of $120,000 is generated for the year. Now consider this restaurant being impacted by COVID-related restrictions in the year 2020, making it eligible for the PPP. The 2 rounds of PPP cash flow grant the franchisee $230,000 and $280,000, respectively.
Furthermore, the owner can file for ERTC for the years 2020 and 2021 for whatever duration government-mandated restrictions impact the restaurant. This lands them another $240,000 and $300,000 for either year.
Looking at all these amounts combined, the programs were able to provide credit greater than 9 years' worth of revenue to the franchisee. The amount can be instrumental in keeping the business afloat during times when customers and resources are scarce and are more expensive to invest in.
Ways To Claim ERTC In Current Times
If a restaurant meets any of the following requirements, it will be eligible to file for ERTC.
- If the restaurant experienced a sizeable revenue decline, set at:
-20% or more for 2021
-50% or more for 2020
- If the restaurant had a full or partial shutdown due to government orders
- If the business was started after February 15, 2020
The eligibility period for filing ERTC has ended. However, businesses can still file a claim for this credit. Employee Retention Tax Credit can be claimed within 3 years of filing employment return taxes. Therefore, restaurant owners can claim $5000 per employee for the year 2020 and $7000 per quarter of a year per employee for the year 2021, with the claim being valid till 2024. Although past its initial introduction, ERTC remains a relevant and useful financial resource for restaurant owners.
A few details can be discussed when highlighting the qualification criteria for the Employee Retention Tax Credit. In a scenario where a franchisee has multiple franchises under their ownership, but not all of them are impacted by COVID-related policies, ERTC can still be filed for every franchise the person owns. This, itself, can significantly boost the aid received by a franchisee through ERTC.
Furthermore, complete stopping of operations for a business is not a must for it to be ERTC eligible. Disrupting the workforce, working hours, or supply chain can also account for ERTC-eligible damages.
A Survey About Employee Retention Tax Credit
Zogby Analysis recently conducted a study to get details on ERTC claims across the country. The research indicates that 60 percent of business owners across the country have failed to benefit from the government's various federal tax incentives throughout the pandemic phase. The most common reason amongst these business owners for not participating in the programs was being unsure whether their business qualified for the program or not.
Understandably, the common business owner of the private sector will not have an excessive understanding of how federal tax incentives work. However, the amount of missed credit opportunities amongst these franchisees is reflective of how most companies failed to seek professional support when looking into these tax incentives. Had these business owners claimed potential credit offers at the appropriate times, their businesses could have worked through the pandemic phase in a much more sustainable, maybe profitable manner.
Claiming Employee Retention Tax Credit
If you happen to be a business owner who experienced any of the earlier mentioned difficulties, including a complete or partial shutdown of business or a significant decline in revenue, consider yourself an eligible applicant for ERTC. Examples discussed in this article illustrate how ERTC can play a key part in strengthening a business' recovery from the losses incurred during the pandemic phase.
A franchisee can potentially gain more than twice the value of their annual revenue by applying.
Most businesses missed out on a potentially stable economic state even during the COVID pandemic due to missing out on credit incentives. If you feel your business is eligible for an ERTC application, TPG is perfectly situated to help you. Sign up for a free evaluation.