The COVID-19 pandemic has had a significant impact on the restaurant industry, with many restaurants shutting down or reducing their operations. The Employee Retention Credit (ERC) is a tax credit established by the CARES Act to help employers who have been financially impacted by the pandemic retain their employees and support their business. In this guide, we will provide an overview of the ERC and explain how restaurants can take advantage of this credit to retain employees and support their business.
Restaurants that have been impacted by the COVID-19 pandemic may qualify for the Employee Retention Credit. To qualify, a restaurant must have experienced a full or partial suspension of operations due to a government order related to the COVID-19 pandemic or have experienced a significant decline in gross receipts. A significant decline in gross receipts is defined as a decline of more than 50% in gross receipts compared to the same quarter in the prior year.
Once a restaurant has determined that it is eligible for the Employee Retention Credit, it must calculate the credit. The credit is equal to 50% of the qualified wages that an eligible employer pays to an employee, up to a maximum credit of $26,000 per employee. Qualified wages are the wages that an eligible employer pays to an employee during the period that the employer's business is fully or partially suspended or during the period that the employer experiences a significant decline in gross receipts.
Restaurants that qualify for the Employee Retention Credit can claim the credit on their quarterly Form 941, Employer's Quarterly Federal Tax Return. The credit is claimed in the quarter in which the qualified wages are paid. Restaurants can also elect to claim the credit on their annual Form 944, Employer's Annual Federal Tax Return.