Was your restaurant one of the hundreds of thousands impacted by the COVID-19 pandemic? Maybe you were forced to shut down your indoor dining room due to a government mandate. Or maybe sales plummeted despite your continuation of carry-out services. If so, you may be eligible for the employee retention tax credit (ERTC).
Created by Congress in 2020, the ERTC provides a refund on payroll taxes for businesses that kept employees on payroll while experiencing full or partial suspension of operations during the pandemic. Restaurants that meet ERTC eligibility criteria can apply for payroll tax refunds of up to $26,000 per employee, providing financial support as employers continue to navigate the lingering effects of the pandemic.
Restaurants remain prime candidates for ERTC funds given the high number of establishments that either closed or downsized operations during the past few years. Eligible employers must file their ERTC claims before the staggered deadlines of April 15, 2024 and 2025. But navigating employee retention credit misconceptions and complexities has left many restaurant owners unsure if they are eligible for the program—and how to proceed if they are.
A restaurant owner’s guide to the ERTC
Filing a claim for the ERTC is a complex process. It requires in-depth documentation, complicated calculations and traversing the labyrinthine eligibility criteria set by the IRS. And the abundance of misinformation circulating on the topic doesn’t make the process any easier.
Fortunately, we have the answers to all of your questions about the ERTC, from eligibility concerns to where you can find support for filing a claim.
- I heard that I’ll be audited if I file for the ERTC. Is that true? While the IRS occasionally conducts random audits for companies that file for the ERTC, audits are usually triggered by discrepancies or errors in claims. Unfortunately, bad actors are capitalizing on the ERTC by filing incomplete or inaccurate claims on behalf of business owners, only to vanish before the IRS audit begins. These types of predatory firms aren’t new. But with the ERTC now on their radar, it’s crucial to remain vigilant against ERTC scams and partner with a reputable firm to file your claim.
- What is the suspension test and how do I know if I’m eligible for the ERTC? Your restaurant is eligible for the ERTC if you:
- Were shut down (fully or partially) by a government mandate as a result of the COVID-19 pandemic during 2020 or the first three quarters of 2021, OR
- Experienced a major decline in revenue in 2020 or the first three quarters of 2021 (compared to 2019), OR
- Qualified as a recovery startup business in Q3 or Q4 2021
To verify your eligibility, the IRS applies the mandated suspension test, which requires you to establish your ERTC eligibility for each quarter for which you are claiming funds.
This means you must prove your business was subject to a relevant governmental order and that the suspended portion of your operations (e.g., cancellation of large group events) represents more than a nominal portion of your business operations. So you’ll either need to save copies of relevant governmental orders or acquire them from a consultant, and maintain reasonable documentation about their specific impact on your operation.
- Why is my tax accountant reluctant to help me file an ERTC claim? The ERTC is a relatively new payroll tax refund with stringent eligibility requirements. So your tax accountant—who’s an expert in routine income taxes, but not necessarily in operations, government mandates or payroll taxes—may hesitate to help with your claim. Accountants are often unfamiliar with the specific requirements and calculations involved with the ERTC, and they may have concerns about legal compliance and the potential consequences of errors.
- Who should I reach out to for support in completing the ERTC application? Most importantly, do not try to DIY your claim. Filing for an ERTC claim not only involves navigating complicated rules from the IRS, but also a “wet signature,” meaning you can’t complete the forms online. Further, calculating the credit for individual employees and deducting PPP funds further complicate the process, which some businesses may have to do for up to six quarters depending on their eligibility. These time-consuming tasks make it difficult to objectively assess the strength of your claim.
For most restaurant owners, the best solution is to engage a reputable consultant with restaurant industry experience that can provide guidance and help determine if the ERTC is worth pursuing. Industry expertise is crucial in ensuring a strong ERTC claim, so identify a consultant with a nuanced understanding of the challenges your business encountered during the pandemic.
- When and how will I receive my refund payment? Despite the common misconception that the ERTC is a tax credit, it’s actually a refund on payroll taxes you already paid from March 2020 to September 2021. While refunds initially took around 4-6 weeks to process, the backlog of claims has pushed this timeline to 6-8 weeks. But as long as you are eligible and filed correctly, you will receive your refund via check.
Act now for vital relief
The deadline to file your ERTC claim is rapidly approaching—and you must act now to secure the financial relief you deserve. By partnering with a trustworthy consultant and following the right protocols, you can increase your chances of accessing the funds you need to protect the future of your restaurant.
Paul Dubanowitz has been an operating partner at Boston Growth Partners (BGP), a management consulting firm that helps middle-market businesses drive growth, since 2021. Prior to joining BGP, his career spanned senior financial planning and business strategy roles in both software and consumer services at various enterprises. He then led institutional sales for the Northeast region of a liquidity management team at one of the world’s leading financial institutions. With extensive experience in accounting, sales, business development, corporate finance, and business strategy, Paul’s diverse skill set enables him to add value across various industries and functional areas of the business.