LOS ANGELES, CA / ACCESSWIRE / December 22, 2022 / The Employee Retention Credit (ERC) for restaurants, bars, cafes, and other food-service type businesses provides a valuable tax refund from the Internal Revenue Service (IRS). Virtually all restaurants in almost every state qualify due to capacity restrictions mandated by almost every state, county, or local city government. Even if revenue did not decline, or actually increased, under the partial shutdown rules, most restaurants still qualify for up to a $26,000 tax refund per employee on company payroll in 2020 and 2021.
Restaurant owners are missing out on a potentially large Restaurant Employee Retention Credit Tax Refund by not fully understanding how and why they qualify. Image Credit: LightFieldStudios / 123rf.
How All Restaurants Qualify for the Employee Retention Credit (ERC)
All restaurants are eligible to claim the employee retention credit in 2022, 2023, and even 2024, "if" they qualify any portion of time between March 13, 2020 to September 30, 2021 for restaurants that were around prior to the COVID pandemic. For restaurants that were started or purchased after February 15, 2020, those restaurants are eligible from the time they opened until December 31, 2021. These types of restaurants are also referred to as a recovery startup business, and qualify for the 4th quarter of 2021.
Two Ways Restaurants Qualify for the Employee Retention Tax Credit (ERTC)
Restaurants only need to qualify a quarter or portion of time for the employee retention tax credit in one, of two possible ways.
1. The first way a restaurant can qualify is if it experienced a full or partial shutdown due to COVID-19 government regulations or any other government-mandated shutdown of operations during specific periods in 2020 or 2021 due to the pandemic.
From the government mandated shutdown or start date of restaurant capacity restrictions to the end date when those same restrictions were fully lifted, your restaurant qualifies for the ERC Credit and tax refund.
A restaurant did not have to be fully shut down to qualify. It could have been only partially shut down due to capacity restrictions of indoor dining, limiting tables and seating, or being forced to reduce hours of operation.
2. The second way a restaurant can qualify for the ERTC tax credit is if it has experienced a significant decline in gross receipts compared to one of two prior years (2019 versus 2020 or 2021). A decline in gross receipts is significant when the decline is more than 50% in 2020 as compared to the same quarter in 2019, or 20% in 2021 compared to the same quarter in 2019. In clear terms, you have to compare the same quarters of 2020 and 2021 with 2019.
If you are a restaurant owner and paid wages to less than 100 employees in any quarter in 2020 (500 employees or less in 2021), those payroll gross wage numbers and salaries will be counted towards the ERC tax credit, regardless of whether they were full-time or part-time.
The rules get tricky if you paid more than 100 employees in any quarter in 2020, or paid more than 500 employees in any quarter in 2021.
Warning: Many Accountants, CPAs, Tax Preparers, and Financial Professionals Are Mistakenly Advising Their Restaurant Clients They Do Not Qualify for the Employee Retention Credit
Unfortunately for restaurant owners and principals, many may have been given bad advice by their accountant, CPA, tax preparer, bookkeeper, financial planner, attorney, or other well-meaning professional.
The primary reason is that their accounting, tax, legal, or financial professionals did not take the time to fully educate themselves on the confusing and complex employee retention credit program for themselves or their business clients.
"Your restaurant DID NOT have to be fully shut down to qualify. It could have been only partially shut down. If your Accounting, Tax, Legal, or Financial Professional told you that your restaurant does not qualify, without first having done a thorough deep-dive analysis, they are completely wrong and do not fully understand the comprehensive current guidelines for the Employee Retention Credit (ERC) program," said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA).
How a Certified Public Accountant (CPA) Almost Cost Their Restaurant Client a $260,814 Employee Retention Tax Credit Refund
"We had a restaurant client come to us who wondered why their Certified Public Accountant (CPA) told them they did not qualify for the ERC. After doing a deep-dive analysis, it was obvious their CPA was wrong! Their accountant would have cost their client a legitimate by-the-book ERC Refund worth $260,814," said Stewart.
In 2020 and 2021, the restaurant received two Paycheck Protection Program (PPP) loans totaling over $800,000 that had been forgiven by the SBA. In prior IRS rulings, PPP loans disqualified a business from claiming the ERC credit. Great news is that it has changed. With current ERC rules, restaurants that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
From late March 2020, not due to a mandated closure, however, due to mandated capacity restrictions on indoor dining that lasted well into mid June 2021, they were eligible to receive an Employee Retention Credit Tax Refund totaling $260,814!
This broke down to $92,638 in 2020 and an additional $168,176 for 2021. That's a total of $260,814 in ERC credits, an actual tax refund check received from the IRS. And this was after correctly subtracting out over $800,000 in PPP loans, and removing majority owners and family members.
"That's a lot of money the restaurant could have missed out on if they would have listened to their CPA. They decided to seek Disaster Loan Advisors expert help in fully understanding how to take advantage of the ERTC for their restaurant. Their ERC Refund claim was qualified and calculated by-the-book, exactly how the IRS designed the ERC program to be followed," said Stewart.
Can Restaurants Claim the Employee Retention Credit if They Received SBA Paycheck Protection Program (PPP) Loans?
Prior IRS rulings, disqualified the business from claiming the ERC credit. Great news is that it has changed. With current ERC rules, restaurants that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
Will Restaurants Qualify for the Employee Retention Credit if They Received a Restaurant Revitalization Fund (RRF) Grant?
The SBA Restaurant Revitalization Fund (RRF) grant program was created under the American Rescue Plan Act of 2021 to help restaurants during these difficult times. Restaurants that received RRF grants can still qualify for the ERTC.
What is the Difference Between the Employee Retention Credit (ERC) and the Employee Retention Tax Credit (ERTC)?
Both the employee retention credit (ERC) and the employee retention tax credit (ERTC) are actually one in the same. The ERC or ERTC are actually the same program from the Internal Revenue Service (IRS) and the terms are used interchangeably.
Are Closed Restaurants Eligible for the Employee Retention Credit?
Depending on circumstances, closed restaurants may be eligible for owners during the qualification period in 2020 and 2021. The employee retention credit is claimed by filing IRS Form 941-X which is amending quarterly payroll from the past. Restaurant owners are able to go back and claim the ERC in certain circumstances, even though they closed or sold their restaurant location.
Can Restaurant Owners Who Sold Their Restaurant Location Qualify for the Employee Retention Credit?
Restaurants that were sold during the eligibility period in 2020 and 2021, might also qualify, up until the date they were sold. Restaurant owners are able to retroactively claim the ERC for their past restaurant locations under certain circumstances.
Restaurant Owners Beware: Employee Retention Credit Companies Charging a Percentage of Your ERC Tax Refund
Restaurant owners are reporting receiving many calls and emails from companies claiming to be Employee Retention Credit experts. An overnight industry has been created around the Employee Retention Credit. Some ERC companies will have restaurant owners sign lengthy page contracts, will charge no money upfront, and then wait to get paid once the business receives their ERC tax refund check.
What many restaurant owners do not realize is that they are overpaying on an excessive scale. Some of these ERC fee levels may rival corporate level fee structures, or big company pricing. Yet, for many restaurant owners, they could be paying 5x to 20x more than they really need to.
Restaurant owners feel these percentage and contingency fees are very expensive. There have been numerous instances of restaurant owners being quoted a percentage of their estimated ERC Employee Retention Credit tax refund. Or, where the fee levels are so excessive, they fall in the range of 15% to 30% of the restaurant owner's ERC tax refund.
For example, if a business was qualified to receive a $100,000 Employee Retention Credit tax refund, and they engaged with a company charging them 30% (or fee equivalent) of their refund, this would be $30,000 the business owner would be paying.
IRS Rules Prohibits Charging a Contingent Fee or Percentage % of a Tax Refund
Even though many companies out there performing ERC services are charging a percentage of a client's Employee Retention Credit refund, they are knowingly, or unknowingly, running afoul of IRS rules and regulations.
The IRS is very clear on this point. It can be found on page 21 of the Regulations Governing Practice before the Internal Revenue Service, Treasury Department Circular No. 230 (Rev. 6-2014), Catalog Number 16586R, under Section 10.27 Fees.
The IRS states, "A practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service. A contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained.
About Disaster Loan Advisors™ Employee Retention Credit (ERC) Services for Restaurants
Disaster Loan Advisors™ (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving restaurants from lost sales, lost customers, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit program assisting restaurant ownership groups with multiple business entities, multiple location restaurant owners, and other complex situations that require an expert strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby restaurant owners can retroactively receive up to $26,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.
It's encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn't charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.
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SOURCE: Disaster Loan Advisors™ (DLA)