By now I am sure you have heard of and likely taken advantage of the PPP loan program that was rolled out in early 2020 as one of the many programs the government used to help keep the economy running and businesses open and operating. But did you also know of a lesser-known program called the Employee Retention Credit (ERC)? This credit was designed to help employers “retain” their current employees through the pandemic even if they were forced to shut down.
Essentially, you are allowed a payroll tax credit for the amount of qualified wages paid to employees after March 12, 2020 through the end of the program (Q3 2021). As with most things, there are certain tests that need to be met in order to be considered an eligible employer for purposes of this credit.
Who is considered a qualified employer, you might ask? To qualify for any given quarter you must meet one of the following:
- You were subject to a full or partial shutdown of operations due to a governmental order
- Experienced a significant decline in gross receipts when compared to the corresponding 2019 quarter
- A 50% decline for 2020 in at least one quarter and a 20% decline for 2021
With that in mind, I will now take you through how the credit is computed. Under the CARES Act of 2020, eligible employers can claim a credit against 50% of qualified wages paid from March 13, 2020 through December 31, 2020, up to $10,000 of wages per employee annually. Keep in mind you cannot double dip and take the credit on wages paid with PPP loan proceeds.
The Consolidated Appropriations Act of 2021 extended the credit but also expanded it significantly, allowing for more businesses to qualify as well as providing for a larger credit. The act states you can now claim a credit against 70% of qualified wages paid. Additionally, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first three quarters of 2021.
It is very important to consult with your tax advisor regarding the definition of qualified wages as there are numerous rules to follow here. Below are a couple of rules to note, especially for restaurant owners.
- Tipped wages are included in qualified wages, but they are only included if they are subject to FICA wages and therefore FICA tax.
- The Employee Retention Credit (ERC) can only be taken on wages that are not forgiven or expected to be forgiven under the Paycheck Protection Program.
- If you have multiple entities, you may have to aggregate entities to determine eligibility
Now you may be wondering, how do I claim these credits if I have already filed my payroll tax reports (941’s) for those periods? The ending of the program does not impact the ability of a business to retroactively claim the Employee Retention Credit. In fact, businesses have up to three years from the sunset of the program to conduct a lookback to determine if wages they paid after March 12, 2020 through the end of the program are eligible.
Whew! That was a mouthful, pardon my pun. This is the Side Dish blog, isn’t it?
These programs are intended to help restaurant owners like you. We all know 2020 and 2021 were full of new, never before experienced issues and mandates. If you believe your restaurant may qualify for the Employee Retention Credit, please reach out to your Henry+Horne advisor today. Cheers to a prosperous 2022!
Austin M. Bradley, CPA