Employee Retention Tax Credit

A new law signed in late December 2020 makes hospitality businesses eligible for an employee retention tax credit, even if they received a PPP loan. Now, for any calendar quarter between March 13 and Dec. 31, 2020, a restaurant with 100 or fewer full-time employees may be able to access the Employee Retention Tax Credit (ERTC) of up to $5,000 per employee.

And, for the first two quarters of 2021, Jan. 1–March 31, and April 1–June 30, businesses with 500 or fewer full-time employees may be able to access ERTC of up to $7,000 per employee per quarter. 

Read more from the National Restaurant Association: Big tax credits to restaurants could support employee retention

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FAQ on the Employee Retention Credit
(The following information provided by Cross Financial)

The eligibility criteria outlined below is referring to the Employee Retention Credit as it is revised in Bill HR 133, Taxpayer Certainty and Disaster Tax Relief Act of 2020, signed December 27, 2020. This went into affect January 1, 2021 and ends June 30, 2021. 

While the IRS has yet to update their webpages on the ERC, the changes outlined in the bill are as follows: 

• Expanded eligibility for the credit by reducing the required year-over-year gross receipts decline from 50 percent to 20 percent and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility;
• Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees;
• Removes the 30-day wage limitation, allowing employers to, for example, claim the credit for bonus pay to essential workers;
• Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance
• Provides that employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERC with respect to wages that are not paid for with forgiven PPP proceeds.

Employers need to make sure they do not claim wages that were used for family leave, PPP or other Cares act related credits. In other words, no double dipping.

Employee Retention Credit 2020 (ended Dec 31, 2020)
An employer with one employee making $12,000 within a quarter would be permitted to use 50% of $10,000 so the max annual employee limit of $5,000 against applicable employment taxes, if there was not enough taxes to offset against, a refund would be calculated at the time of filing form 941, or a refund can be requested earlier by filing form 7200.

1 Employee x $12,000 in quarterly wages = $12,000
$12,000 - $10,000 (max qualifying wage amount) = $10,000
$10,000 x 50% (eligible credit percentage)  = $5,000 employee retention credit (ERC)
$5,000 in ERC - $ (employment taxes) = Refund amount if credit exceeds employment taxes for the quarter.

Employee Retention Credit 2021 (ends June 30, 2021)
The Employee Retention Credit as it is revised in Bill HR 133, Taxpayer Certainty and Disaster Tax Relief Act of 2020, signed December 27, 2020 outlines updates for the calculation of the ERC. This went into affect January 1, 2021 and ends June 30, 2021. 

An employer with one employee making $12,000 within a quarter would be permitted to use 70% of $10,000 so the max quarterly employee limit of $7,000 against applicable employment taxes. If there is not enough taxes to offset against, a refund would be calculated at the time of filing form 941, or a refund can be requested earlier by filing form 7200.

1 Employee x $12,000 in quarterly wages = $12,000
$12,000 - $10,000 (max qualifying wage amount) = $10,000
$10,000 x 70% (eligible credit percentage for Q1)  = $7,000 employee retention credit (ERC)
$7,000 in ERC - $ (employment taxes) = Refund amount if credit exceeds employment taxes for the quarter.