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08/08/2022

What Local Restaurant Owners Still Need to Know About COVID-19 Relief Funds

Don’t give up on applying for the Employee Retention Tax Credit just yet.
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covid relief funds

Restaurants, diners, bars, and cafes around the country dealt with near or at 100% capacity reduction during the initial COVID-19 lockdowns of 2020. It was a disastrous. From limited capacity service and takeout to outdoor dining and social distancing rules, it has been a constant state of stopping and starting for these businesses. 

The restaurants that managed to survive through the economic hardship turned to relief packages to keep the lights on and employees paid. But eventually, the aid dried up. However, contrary to popular belief, hard-hit places like mom-and-pop restaurants are still eligible for help. 

 

Continuing to Help Small Businesses

According to the National Restaurant Association, 110,000 eating and drinking establishments closed for business – temporarily or permanently – in 2020 in the U.S. alone. The wave of closures affected 2.5 million jobs and caused $240 billion in sales to drop during that time. 

Many local businesses turned to the CARES Act for help, which included up to eight weeks of reimbursement for key operations like payroll, utilities, and other necessary expenses. Despite a further $40 billion in COVID-19 assistance for restaurant owners, it might not have been enough. One business owner quite vividly described the stimulus payments as “a Band-Aid on a gunshot wound.” 

Restaurant owners are still struggling to make ends meet, but further help lies in the Employee Retention Tax Credit (ERC).

The ERC — What to Know

The credit, which was enacted under the CARES Act when it was first signed into law in March 2020, is a refundable payroll tax credit for wages paid by an employer whose business was either fully or partially suspended due to the COVID-19 pandemic. Businesses can claim the credit if their establishments experienced at least a 10% decline in gross receipts compared to previous years. 

Consisting of a quarterly tax credit against a given employer’s share of certain payroll taxes, the relief calculates out to 70% of the first $10,000 in wages per employee in each quarter of 2021.

Most importantly, although the credit expired at the end of 2021, lawmakers extended eligibility for the program’s refunds in the Consolidated Appropriations Act (CAA), enacted in December 2020, and the American Rescue Plan Act (ARPA), enacted in March 2021. This extension allows local restaurateurs to retroactively claim ERC benefits, and they now have up to three years from the end of the program to file for potentially millions of dollars in lifeline reimbursements.

And the amount of relief is not minimal. 

The credit is worth up to $7,000 per quarter and up to $28,000 per year for each employee. This applies to wages (inclusive of the cost of employer-paid health benefits) that were paid or incurred from March 13, 2020, through December 31, 2021.

The ERC — Who is Still Eligible?

If you’re a local restaurant owner, you likely have 500 or fewer employees. That means you’re eligible. Over 80% of businesses in general that apply end up qualifying for the credit. 

The CAA expanded qualifications to any business that received a pandemic loan under the Paycheck Protection Program (PPP); even borrowers from the initial PPP rounds that were listed as ineligible can still claim the tax credit. 

Basic eligibility for a credit amount is broken down by a couple of specific factors.

  1. The restaurant or eatery had to have fully or partially shut down due to a governmental order during any part of the period in question.
  2. Gross receipts in a quarter had to have declined by more than 20% compared to either the same quarter in pre-pandemic 2019 or, for the places that toughed it out, the immediately preceding quarter in 2020 or 2021.

Additionally, restaurants that experienced a 50% or greater decline in gross receipts are eligible for an 80% credit of wages. 

There’s good news for businesses that opened after February 15, 2020, as well. They could claim credit for the final two quarters of 2021, including $50,000 per quarter if they earned less than $1 million in annual gross receipts and even if they didn’t shut down during the pandemic.  

Claiming Credit — A Basic Guide

The IRS issued guidance for restaurant owners looking to claim ERC benefits on qualified wages after March 12, 2020, and before January 1, 2021. 

But those looking to claim credit for past quarters retroactively must fill out what’s known as Form 941-X, the “Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund” document for the applicable quarter and submit it to the IRS.

Final Thoughts

“[The Employee Retention Tax Credit] takes time, but it won’t run out,” said a statement by the National Restaurant Association. Local restaurants still impacted by the COVID-19 pandemic can help fight to get back to pre-pandemic prosperity. They just need to be patient and make sure they know the facts. It’s crucial to be aware of retroactive payment eligibility through the ERC, but also how to apply.  

Forty million Americans working for small and mid-sized businesses have remained at their jobs because of the ERC. Retroactive payments are still available, which means far more restaurants, owned by the people you know, can reap the benefits and save their business.

About the Author

Howard Makler is founder and CEO, Innovation Refunds.