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The National Restaurant Association said the employee tax retention credit was the only available federal government relief to support payroll and employee benefits without adding new debt.

$1 Trillion Infrastructure Law Ends Employee Retention Tax Credit

In light of the termination, the National Restaurant Association urged the IRS to work through tax credit backlogs and defer federal income tax payments.

President Joe Biden signed a $1 trillion infrastructure bill into law Monday that ends the employee retention tax credit retroactive to after September 30. 

The ERTC provides a tax credit equal to 50 percent of qualified wages paid, up to $10,000 per employee, after March 12, 2020 and before January 1, 2021. The National Restaurant Association said it was the only available federal government relief to support payroll and employee benefits without adding new debt.

In response to the ERTC’s conclusion, the Association asked Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig in an open letter to help restaurants navigate the credit’s end.

The Association called for the IRS to speed processing of ERTC payments so the backlog from 2020 and previous calendar quarters in 2021 are resolved by the end of the year. The organization also wants the IRS to allow small businesses to defer their fourth quarter federal income tax payments due on January 15, 2022 to July 15, 2022. The Association additionally asked the IRS to safeguard all deferred fourth quarter federal income tax payments from any penalties or interest.

“While the infrastructure investments made with this bill won’t solve our most immediate supply chain challenges, they will improve long-term business opportunities for restaurants in communities large and small,” said Kennedy, the Association's executive vice president of public affairs. “We’re disappointed that Congress was short-sighted in ending the Employee Retention Tax Credit, which continues to be one of the only remaining rebuilding tools for restaurant operators. The ERTC has been an invaluable lifeline for restaurants struggling to retain workers. We hope that Congress will reconsider and find a way to reinstate it until the end of the year.”

Around 85 percent of restaurants reported lower profitability than before the pandemic, according to the letter.

READ MORE: The Employee Retention Credit: A Boon to the Restaurant Industry

“Far too many struggling restaurants have waited more than six months since they originally submitted applications and have not received fiscal assistance under this program,” said Kennedy, citing a Government Accountability Office report in July that found the IRS has been experiencing a paper return backlog of 2.5 million unprocessed forms. 

“We urge the IRS to immediately expedite the processing of all ERTC payments—for both 2020 and the previous calendar quarters of 2021—so that eligible restaurants can receive these badly needed funds by the end of the calendar year,” he continued. 

More than 424,000 employers deferred about $112 billion in federal Social Security taxes as a way to retain liquidity for employee retention, the letter says, adding that if a familiar sum is now subject to federal tax payments, the IRS should provide flexibility to pay the fourth quarter’s quarterly income tax payment.

“As President Biden signs the Infrastructure Investment and Jobs Act into law, and the IRS issues new regulations within weeks, we respectfully remind the Administration that this ERTC change will resonate with restaurants for years,” Kennedy said in the letter.

The Association said the American Rescue Plan Act of 2021, which included the $28.6 billion Restaurant Revitalization Fund and the six-month extension of the ERTC, was “an essential step” to reviving the hospitality industry. In the four months after, employment in eating and drinking places surged by nearly 900,000, and restaurants were hopeful for a 2021 rebound.

However, rising Delta variant cases brought employment gains to a halt, the letter says. Two in three eligible restaurants, or about 177,000 small businesses, did not receive any aid from the Restaurant Revitalization Fund. Additionally, restaurants and bars remain nearly 800,000 jobs, or 6.4 percent, below pre-pandemic levels.

“The termination of ERTC after September 30, 2021, deals a retroactive, sudden blow to restaurants currently utilizing the program during this calendar quarter,” Kennedy said in the letter. “As restaurants enter a second winter with COVID-19, small businesses will now face a potential claw back of federal taxation and a compliance nightmare.