Key Takeaways
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The Employee Retention Credit (ERTC) can offer up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for the first three quarters of 2021.
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Eligibility for the ERTC includes experiencing a significant decline in gross receipts or being subject to a full or partial suspension due to government orders.
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Even if your restaurant’s overall sales increased, you could still qualify if dine-in services, which are a significant portion of your business, were impacted.
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Proper documentation and understanding of the interaction between PPP loans and the ERTC are crucial for a successful claim.
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There’s a strategic approach to claiming your credit, including timing, documentation, and maximizing your eligible amount.
Hey there, restaurant owners! Let’s cut right to the chase. You’ve been through a lot, and there’s a silver lining with your name on it: the Employee Retention Credit (ERTC). I’m here to walk you through the maze, so you can come out on the other side with a hefty tax credit in hand. So, grab your notepad, and let’s dive in.
Your Guide Through the ERTC Maze: What Every Restaurant Owner Must Know
Understanding the ERTC is like finding the secret sauce to your favorite dish—it can make all the difference. The ERTC is a tax credit created to help businesses, just like yours, keep their staff employed during the tough times brought on by the pandemic. Think of it as a “Thank You” note from Uncle Sam, with some serious cash attached.
The Basics of Employee Retention Credit
First things first, the ERTC isn’t a loan; it’s better. It’s a tax credit that directly reduces the tax you owe. And if the credit is more than what you owe, you get the difference back in cash. For 2020, it can be up to $5,000 per employee. For the first three quarters of 2021, that number jumps to $7,000 per employee, per quarter. That’s not chump change!
Essential Criteria for Restaurant Eligibility
Let’s talk eligibility. To get this credit, you need to check one of two boxes. Either your gross receipts took a nosedive, or your business was partially or fully suspended due to government orders. Now, “significant decline” means your gross receipts for a 2020 quarter were less than 50% of the same quarter in 2019. For 2021, it’s a bit easier; they only need to be less than 80%.
But here’s the kicker, even if your takeout business boomed and your overall sales went up, you could still qualify. Let’s say your restaurant is famous for its dine-in experience, which normally brings in a big chunk of your revenue. If government orders slapped restrictions on that, even if your delivery sales soared, you’re still in the game for the ERTC.
How Full or Partial Shutdowns Affect Your Claim
Here’s the deal with shutdowns: if the government put the brakes on your operations, even just a part of them, that’s your golden ticket to ERTC eligibility. This isn’t just about being closed entirely. If you had to limit capacity in your dining room or cut hours, that counts too. The IRS says the shutdown must have a “more than nominal” effect on your business, and in the restaurant world, that’s not hard to demonstrate.
Interaction Between PPP Loans and ERTC
Now, you might be wondering about the Paycheck Protection Program (PPP) loans and how they play with the ERTC. Initially, you couldn’t double-dip. But good news, the rules have changed. You can now benefit from both, just not on the same wages. So, if you used PPP funds to cover payroll for a period, those specific wages are off-limits for the ERTC. It’s like having two coupons but you can only use one per item.
Claiming Credit Amidst Changing Health Orders
Health orders have been as unpredictable as a lunch rush. One minute you’re open; the next, you’re limited to outdoor seating. The key to claiming your credit during these times is to track these changes meticulously. Document every order that affected your business operations. This isn’t just about eligibility; it’s about maximizing your credit. Every time you had to pivot, it likely impacted your bottom line, and that’s exactly what the ERTC is here to alleviate.
Taking Action: How to Claim Your ERTC
Let’s roll up our sleeves and claim what’s yours. Start by gathering your 941 tax forms—you’ll amend these to claim the ERTC. If paperwork isn’t your thing, get a trusted accountant on board. They can navigate the forms and ensure you’re claiming the maximum credit. Remember, timing is everything. You want to get this done ASAP to improve cash flow and keep your business thriving.
Documentation Done Right
Documentation is the backbone of your ERTC claim. You need detailed records of not just your gross receipts but also of any government orders that affected your operations. Keep payroll records, bank statements, and anything else that proves the impact on your business. Think of it like keeping a recipe precise—it ensures the end result is just right.
Application Timing and Best Practices
For the best results, file your claim within the appropriate deadlines. For 2020 credits, you have until April 15, 2024. For 2021, it’s April 15, 2025. But why wait? The sooner you claim, the quicker you get funds to reinvest in your business. Plus, the IRS is experiencing delays, so the early bird gets the worm—or in this case, the cash.
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Review all government health orders and document how they impacted your business.
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Gather financial records, including payroll and gross receipts, for the relevant periods.
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Amend your 941 tax forms to claim the ERTC, or work with an accountant who can do it for you.
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Don’t wait—file as soon as you’re ready to improve your cash flow and get ahead of potential IRS delays.
The Numbers Game: Calculating Your Credit
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For 2020, the credit is 50% of qualified wages, up to $10,000 per employee annually, capping at $5,000 per employee for the year.
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For the first three quarters of 2021, the credit jumps to 70% of qualified wages, up to $10,000 per employee per quarter, maxing out at $21,000 per employee for the year.
Calculating your credit is like measuring ingredients for a perfect bake. You need the right amounts to ensure success. For 2020, take 50% of the qualified wages paid to each employee, up to $10,000 for the whole year. That means you can get a maximum of $5,000 per employee. For 2021, it’s even more generous: 70% of qualified wages per quarter, up to $10,000 per employee, per quarter. Yes, that means up to $21,000 per employee for the year!
Breaking Down the Maximum Credit Per Employee
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2020: Up to $5,000 per employee for the year.
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2021 (Q1-Q3): Up to $7,000 per employee, per quarter.
Let’s put this into perspective with an example. Imagine you have a sous chef, Alex, who earned $30,000 in 2020. The maximum eligible wages for the ERTC would be $10,000, which is capped for the year. So, you could claim a $5,000 credit for Alex. Now, fast forward to 2021. If Alex earned the same amount each quarter, you could claim up to $7,000 per quarter for their wages, potentially adding up to $21,000 for the year.
Example: Alex’s ERTC Credit Breakdown
2020: $30,000 in wages, eligible for a $5,000 ERTC credit.
2021: $30,000 in wages each quarter, eligible for up to $7,000 ERTC credit per quarter.
Calculating your credit isn’t just about crunching numbers; it’s about understanding the story behind those numbers. For 2020, you’re looking at 50% of qualified wages per employee, capped at $10,000 for the entire year. This means you can bag up to $5,000 per staff member. Now, 2021 turns the generosity up a notch, offering 70% of qualified wages per quarter, up to $10,000 per employee for each of those first three quarters. That’s a potential $21,000 per employee!
Understanding the Quarterly Qualifications
Every quarter has its own story in the ERTC saga. You need to assess each one separately to see if you meet the decline in gross receipts criteria or if you were affected by governmental orders. This isn’t a one-and-done deal; it’s a continuous process where staying on top of your financial and operational changes is key to maximizing your credit.
Frequently Asked Questions
Can I claim ERC if my restaurant received a PPP loan?
Absolutely! Initially, the rules said ‘no’, but they’ve since been updated. You can now claim the ERTC even if you received a PPP loan. The catch is you can’t use the ERTC for the same wages that the PPP covered. It’s all about ensuring you’re not double-dipping into these relief funds.
What defines a “significant” decline in revenue for ERTC eligibility?
A “significant” decline in revenue means your restaurant’s gross receipts for a 2020 quarter are less than 50% of what they were for the same quarter in 2019. For 2021, the threshold is less than 80%. So, grab those financial statements and start comparing—it’s time to pinpoint exactly where your revenue stands.
Remember, it’s not just about whether your overall sales went down. It’s about the specific impact on each part of your business. For example, if your dine-in service was a major player in your revenue stream and it took a hit, that’s significant—even if delivery sales were up.
Let’s say in the second quarter of 2019, your restaurant pulled in $100,000. If in the same quarter of 2020, you only made $45,000, that’s a significant decline. You’ve just met one of the key eligibility criteria for the ERTC.
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Compare each quarter’s gross receipts in 2020 with the same quarter in 2019.
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If the 2020 quarter’s gross receipts are less than 50% of the 2019 quarter, you’ve got a “significant” decline.
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For 2021, the gross receipts for a quarter need to be less than 80% of the same quarter in 2019 to qualify.
How do I measure the impact of governmental orders on my restaurant?
When it comes to governmental orders, the devil is in the details. You need to assess how each order specifically affected your operations. Did you have to reduce seating capacity? Were your operating hours cut? Each of these orders has a tangible impact on your ability to do business as usual, and that’s what the ERTC is looking to compensate.
For instance, if an order came through that slashed your indoor seating capacity by 50%, you need to quantify how much of your revenue was tied to that indoor seating. If it was a significant portion, you’ve got a strong case for ERTC eligibility due to operational disruption.
Example: If your restaurant typically earns $10,000 a week from dine-in customers and a government order reduces your capacity, causing you to earn only $5,000 a week, that’s a significant impact worthy of an ERTC claim.
What is the deadline for claiming my ERTC refunds?
Don’t let the clock run out on your chance to claim the ERTC. For 2020, you’ve got until April 15, 2024, to amend your 941 forms and stake your claim. For 2021, the deadline extends to April 15, 2025. But why wait? The earlier you get your claim in, the sooner you can put that money back into your business where it belongs.
Are there specific forms or procedures for filing an ERTC claim?
Yes, the IRS requires you to file amended 941-X forms to claim the ERTC. This can get tricky, so don’t hesitate to enlist the help of a tax professional. They’ll know the ins and outs, ensuring you cross every ‘T’ and dot every ‘I’, which is crucial when dealing with tax matters. Get those forms in order, and let’s get your claim on the move.
Remember, the ERTC is here to help you keep the heart of your restaurant beating—the staff who make it all happen. So, take these steps, grab the credit you deserve, and let’s keep cooking up success together.
