5 Things Restaurant Operators Should Know about ERC
The new Consolidated Appropriations Act brings about a few changes that all restaurant operators should know.
What is the PPP & ERC?
The Payment Protection Program (PPP) is a 2- or 5-year low-rate loan provided by the government to offset the burden of expenses in spite of reduced revenue. The PPP loan is forgivable and can be used for payroll, rent, utilities, etc.
The Employee Retention Credit (ERC) is a refundable tax credit for wages paid after March 12, 2020 and before January 1, 2021 by an eligible employer whose business has been financial impacted by COVID-19.
There’s a lot to know to make sure you’re not leaving any money on the table. Let’s look at a few of the more important points.
1. You can now receive BOTH a PPP loan AND claim the ERC.
The biggest change from the original CARES Act passed at the onset of the COVID-19 pandemic is that businesses are now permitted to receive both the PPP loan AND the ERC.
2. The revenue reduction criteria has dropped from 50% to 20%.
In last year’s program, pursuing a PPP loan or tax credit required at least a 50% reduction in revenue for any quarter in 2020 compared to a comparable quarter in 2019. The Consolidated Appropriations Act now allows for only a 20% revenue reduction quarter over quarter.
3. The revenue reduction is not the only criteria.
Even if you haven’t experienced a “significant decline in gross receipts,” you are still eligible for the credit if you’ve experienced full or partial restrictions to your operation. For example, if you offer dine-in service and were forced to eliminate or limit dine-in capacity because of government-imposed restrictions due to COVID-19, you are eligible.
4. If you’ve already applied for PPP forgiveness, you can still claim ERC.
If you’ve already used your PPP funds and applied for forgiveness, you may still be eligible to claim the employee retention tax credit. It will depend on whether you still meet the baseline business impact criteria and how the funds were used (operating expenses vs. payroll and the percentage of payroll covered, for example).
5. What should you do next?
Questions that you should start to ask are:
- What’s the best way to combine the PPP with the ERC?
- How should I use the PPP money if I plan to claim ERC?
- Should I claim ERC before or after I pursue PPP loans and forgiveness?
- How much money am I eligible to claim?
- What other credits am I eligible for?
The considerations involved in answering the questions above are complex and will be different depending on your circumstances.
That’s why we’ve partnered with Doug Carpenter, of Comprehensive Hospitality Solutions, to host a webinar that will dive in a bit deeper on these topics and provide you more information to plan your strategy effectively.