The Employee Retention Tax Credit (ERTC or ERC) is available to single restaurants, parent-subsidiary controlled restaurants, brother-sister controlled restaurants with under 100 employees who paid qualified wages during the pandemic. Through the ERC tax credit, restaurants could receive up to $21,000 per employee.
Restaurant Eligibility for ERC
To be eligible for the ERC tax credit, restaurants must have paid qualified wages to employees during the COVID-19 pandemic. They must also qualify under the following:
Full or partial business operations were suspended due to government-regulated COVID-19 lockdowns or restrictions
The restaurant saw a decline in gross receipts over 50% in comparison to the same quarter of 2019
Fine dining, casual dining, and fast food restaurants all qualify for the ERC tax credit as long as they fit into the qualifications above. To figure out how much your business could receive from the ERC tax credit, use the ERC calculator before filling out your application.
ERC and Restaurant Revitalization Fund
Good news for restaurants, you can benefit from both the ERC tax credit and the Restaurant Revitalization Fund (RRF) if you qualify for both. However, payroll expenses allocated towards the RRF are not eligible to be used towards ERC.
Unlike the RRF, which was a loan for restaurants and food service companies, the ERC is a refundable tax credit. This means that the ERC tax credit can be used towards taxes you owe. If the amount you owe for that tax year is less than the tax credit you received, you will receive the remaining amount as a refund.
ERC Aggregation Rules for Restaurants
Some restaurants, whether full-service or quick-service, may be part of a larger group of restaurants. Types of restaurants that fall under the ERC tax credit’s aggregation rules include:
Brother-sister controlled restaurants
Parent-subsidiary restaurants
Chain restaurants
Under the ERC aggregation rules for restaurants, business owners must treat all restaurants as a combined single business entity. That means, if you have more than 100 employees in total between both restaurants, you will not qualify for the ERC tax credit. In addition, if your gross receipts between both businesses did not decline by more than 50%, you will not qualify.
ERC Restaurant Examples
If you are not sure whether your restaurant qualifies for the ERC tax credit, review the following examples that show how your business could benefit.
Owner A opened their first restaurant in 2015 called A’s Fine Dining, an Italian full-service fine dining restaurant. In 2018, they opened a second restaurant called A To-Go, a Mexican takeout fast food restaurant. In total between both restaurants, they had 75 employees on payroll in 2020. During the pandemic, they only allowed takeout at A’s Fine Dining. They also were unable to open for March and April in 2020 due to the pandemic. Owner A qualifies for the ERC tax credit and must follow aggregation rules for his brother-sister restaurants.
Owner B owns a single casual dining restaurant with 102 employees on payroll in 2019 and 2016 on payroll in 2020. Owner B had to close due to government restrictions for COVID-19 between March 20, 2020 and August 15, 2020. Because Owner B has over 100 employees in the 2020 tax year, they do not qualify for the ERC tax credit.
My Restaurant Is Eligible for ERC. When Should I Apply?
If your restaurant qualifies for the ERC, you should apply as soon as possible to receive your refundable tax credit. The ERC is still available as long as funds are available. However, the IRS has already received a large amount of applications, leading to delays of up to nine months before approval. This could be stressful for restaurants in need of financial relief.
For the 2020 tax year, the deadline for ERC for restaurants is April 15, 2024. For the 2021 tax year, the deadline for ERC is April 15, 2025. Because of the delays at the IRS and the likely need for financial relief, the sooner you apply, the better.
ERC Restaurant Consulting
If your restaurant qualifies for the ERC tax credit, speak with an ERC consultant to help you complete your application. An ERC consultant is typically an experienced tax consultant or tax attorney who understands how to navigate dealing with the IRS. This can help you receive your ERC tax credit sooner, even with delays at the IRS due to a surplus amount of applications submitted.
Five Star ERC Experts consists of a team of tax consultants and certified tax attorneys who are ready to help you complete your application. They can get you in line with the IRS faster, so you are one step closer to receiving your tax credit or refund.