I got a PPP loan, how much will my credit be?
As can be seen in the example, the credit available to restaurants can be a meaningful portion of total payroll for the year in addition to the PPP loan that was received. This is because of two traits common among many restaurants during 2020:
- Government orders forced most restaurants to limit in-store dining throughout the majority of the year. In many cases, the restaurant business would therefore qualify for the ERC as being “partially suspended” for the duration of the order . Since PPP loans were designed to cover only 2.5 months of wages, there are sufficient wages remaining to also claim the ERC.
- Many restaurant employees earn less than $10,000 per year. Therefore, a high percentage of the business total payroll costs qualify for the credit.
What are the eligibility requirements?
To qualify, businesses must meet one or more of certain eligibility requirements, including a substantial decline in gross receipts and being suspended by a government order due to COVID-19. While generally obtainable to restaurants, these requirements must be reviewed thoroughly with an advisor to ensure the business is eligible.
How do I claim the credit?
The credit is a payroll tax credit and is claimed on Form 941. Because all Forms 941 have been filed for 2020, eligible companies will need to adjust their quarterly payroll reports using Form 941-X to claim the credit.
What’s the impact on my income taxes?
You do not need to claim the credit received as taxable income. However, the business must reduce the wage deduction on their income tax return by the amount of the credit received. If your income tax returns have already been filed, an amendment would be necessary.
Is this credit available in 2021?
Yes! In fact, the credit is even higher in 2021. Businesses may claim a credit equal to 70% of qualified wages and the wage limits resets each quarter. The result is a maximum of $7,000 per employee per quarter for all of 2021. So, an employer could claim $7,000 per quarter or up to $28,000 per employee if they are eligible for all four quarters in 2021.
Once an afterthought, the ERC is now a valuable benefit to many restaurant owners. Although it requires detailed record keeping and careful calculation, the reward can help sustain your operations. Contact Baker Tilly’s Employee Retention Credit advisors for further guidance.