In March 2020, several firms were obliged to halt activities that were not required to preserve or...
In the aftermath of COVID-19, the private sector, hotels, and restaurants, particularly, have still not financially recovered from the losses incurred. In such conditions, the Employee Retention Tax Credit incentive continues to be a source of relief for these much-troubled business owners. The federal tax incentive has already awarded large sums of money to impacted businesses over the past 2 years.
With its launch in March 2020, the primary aim of ERTC was to support business owners in keeping their workers: to avoid widespread severance of contracts or delayed payments due to an uncertain form of revenue generation. Although businesses are moving towards recovery, they can still potentially claim ERTC for 2020 and parts of 2021.
Eligibility Requirements for Employee Retention Tax Credit
Certain requirements must be met by a business to make it eligible for the Employee Retention Tax Credit incentive.
- Your company was impacted by government-mandated restrictions on working hours, capacity, and business
- The business suffered a significant decline in revenue compared to 2019
Businesses that have taken advantage of similar incentive programs like Restaurant Revitalization Funds Shuttered Venue Operator Grants or Paycheck Protection Programs can still apply for ERTC. A franchisee can receive credit from more than one federal incentive program.
Certain businesses that may have started functioning after February 2020 are eligible for filing ERTC by startup incentives.
Qualifying For Employee Retention Credit
Certain procedures are followed to ensure an applicant’s qualification for the Employee Retention Tax Credit.
Shutdown Mandated by Government Orders
To contain mass gatherings and maintain social distancing protocols, government policies made modifications to how certain businesses operated during the pandemic phase. This could include the complete or partial shutdown of operations, modification of working hours, working on alternative days, or reducing a restaurant’s seating capacity. If a restaurant is subjected to any of these changes during the pandemic phase, the owner will qualify as an ERTC applicant.
In addition, disruption of the resources a restaurant may need to function, such as food items, also hinders regular operations and makes the business ERTC eligible.
A Decline in Revenue Generation
A decline in revenue generation is another important criterion used to check a restaurant’s eligibility for ERTC. If a restaurant shows a 50% or greater decline in revenue generation in 2020 compared to 2019, it is eligible to file for ERTC. Similarly, suppose a restaurant shows a 20% or greater loss of revenue in a specific quarter of 2021 compared to the corresponding quarter in 2019. In that case, it will also be eligible to claim ERTC for that quarter.
These are the two primary distinctions that have been made for deciding whether a business qualifies to claim ERTC or not. Most business owners express confusion regarding their possible qualifications. It is therefore vital to get professional consultation for filling out ERTC applications.
When it initially came out under the CARES Act of 2020, the Employee Retention Tax Credit was not exclusive from PPP, and only one of the two benefits could be availed by a franchisee. Later on, this distinction changed when the Consolidated Appropriations Act was passed.
Applicants can now avail themselves of the benefits of both the PPP and ERTC incentives to obtain maximum assistance while trying to restabilize their businesses. The same rulings extend to the combination of ERTC and RRF programs.
Added Benefits of Employee Retention Tax Credit In 2021
Since its implementation in 2020, the Employee Retention Tax Credit has been instrumental in supporting franchise owners who needed to stabilize from the economic suffering caused by the COVID-19 pandemic. ERTC in 2021 has some benefits that were not made available in 2020.
In the previous year, a business needed to meet a threshold of having 100 employees or less to file for ERTC. This threshold was increased to 500 or fewer employees in 2021, which allowed businesses with a larger payroll to apply for ERTC.
The amount of credit granted per eligible employee also changed between 2020 and 2021. The number was 50% of qualified wages per employee, with a maximum credit of $10,000 achievable per employee. This changed to 70% of qualified wages per employee in the following year, while the $10,000 cap now applied to each quarter of the year rather than the year as a whole.
Why Did Franchise Owners Miss Out On ERTC
Numerous survey reports indicate that business owners, in general, were either unaware of the Employee Retention Tax Credit incentive, misinformed about its significance, or unsure whether their business qualified to apply for ERTC or not.
A common misconception regarding ERTC was its relationship with the PPP. Most business owners held the view that a single business could not avail themselves of both ERTC and PPP. Therefore, they did not apply for ERTC if they had already claimed PPP. Furthermore, franchisees who managed to maintain stability or even show positive growth compared to 2019 without any assistance assumed their business would not qualify for ERTC as it incurred no losses. Incurring losses is not necessary to claim ERTC, as a business impacted by COVID restriction qualifies for ERTC whether it experiences a negative revenue generation trend or not.
Stabilize The Regrowth of Your Business with Employee Retention Tax Credit
Conclusively, the Employee Retention Tax Credit undoubtedly provides franchise owners with the necessary support to recover from losses of the last few years.
The highlight of ERTC, especially ERTC for restaurants, can be found in the longevity of its claim. A franchisee has until 2024 to make good use of the ERTC incentive. Make sure to apply for ERTC if you are a business owner who has not yet received employee retention credit.
We hope you enjoyed our blog and learned something new and helpful! Now, you may be thinking, "What's the next step?".
Well, we have you covered. Call a TPG ERTC expert to check your eligibility, just dial 909.724.4401 today. We'll be happy to book a meeting and answer all your questions!
