by Dean Zerbe, National Managing Director at alliantgroup and Former Senior Counsel to the U.S. Senate Finance Committee
March 26, 2021
Restaurant owners have had to completely flip their operations to accommodate proper health and safety protocols for over a year now, but the country is finally starting to see the light at the end of the tunnel with an influx of vaccine distribution. 2021 may have some good in store for the industry moving forward.
However, change isn’t going to happen overnight. Business owners and our country’s leaders will have to come together to restore normal operations. Congress recently signed off on a number of provisions in the Consolidated Appropriations Act of 2021 that provide financial aid to business owners in the restaurant and hospitality industries to help expedite recovery from the year-long pandemic.
Before coronavirus, the food service industry was the second-largest private sector employer in the United States. A study conducted by S&P Global revealed that restaurants were instantly one of the most affected industries when coronavirus made landfall, with a 19.4% (ccc) probability of default (PD) right off the bat in April of 2020. This is no surprise—we saw the impact every day with many of our favorite restaurants completely shutting down or having to substantially cut back on both workforce and patron capacity due to government-mandated closures.
Here are more statistics from 2020 documented by the National Restaurant Association:
- Restaurant industry sales in 2020 were down $240 billion from expected levels.
- Restaurant industry employees in 2020 were down 3.1 million from expected levels.
- Upwards of 110,000 restaurant locations were temporarily or permanently closed.
The time to rebuild is now, and there are a number of ways for business owners to get their hands on funding to reinvest in capital and hire back their workforce.
Restaurants who have either scraped by to make ends meet, or even those who have adapted to find ways to grow their business during the pandemic are well positioned to receive substantial COVID-relief incentives.
Small and medium-sized businesses (SMBs) are the backbone of America’s economy. Pre-COVID, restaurants employed 10% of the entire U.S. workforce. If you’ve managed to retain employees, there is a substantial relief package ready for you to help get your business up and running at full capacity again.
One of the largest COVID-relief incentives for restaurants is the Employee Retention Credit (ERC). This credit is exactly what it sounds like—business owners can receive lucrative credits for each employee kept on payroll throughout the pandemic, up to thousands of dollars per employee. Congress put this in place to expedite the economic recovery of SMBs across all industries.
As this credit continues to grow in popularity every day, there is also a lot of misinformation being circulated in the industry. I’ve seen many prematurely disqualify themselves due to incorrect information being delivered to business owners or their advisors. Here some common misconceptions that should be taken into account:
- Before, you couldn’t double dip if you initially claimed PPP. You now can claim the Employee Retention Credit even if you’ve already claimed PPP and/or have had your loan forgiven.
- Your business did not have to be completely shut down during the pandemic. If you had to partially suspend or cut back on operations in any way due to government orders, you can qualify for ERC.
- If your business grew during the pandemic, you could still qualify for the credit. The efforts of business owners who quickly adapted to a COVID economy and managed to see growth are still eligible for certain expenses.
- You can look at sales from previous quarters to determine eligibility, meaning you can review revenue lost in 2020.
- This is a refundable credit that can be sent to business owners as a refund if you experienced a loss and do not have any tax liability.
On a surface level, there are only two (2) major factors to qualify, but it’s safe to say that almost every restaurant in the U.S. can qualify for this:
- Previously at 50% under the CARES Act, you can now qualify if you’ve seen a reduction of 20% in gross receipts.
- This is available to businesses who can demonstrate that they have been impacted by COVID.
The above requirements are just the tip of the iceberg. Enrolling to receive the Employee Retention Credit and maximizing your benefit goes beyond simply filling out a form or questionnaire.
In the heat of tax season, it is also crucial to properly claim these incentives before upcoming filing deadlines. I highly recommend that business owners and/or their advisors partner with an experienced firm to not only maximize returns, but to cash in on combining ERC other lucrative incentives that Congress is rolling out, such as the Work Opportunity Tax Credit (WOTC).
While we are well on our way to restore our country’s normal, there is no doubt that the hospitality industry took a major hit, and Congress wants to help get everyone back on their feet. Not only do restaurants feed America, but restaurants are also where we celebrate, make memories, and provide unique experiences to Americans every day.
COVID-relief funds are available to your business now. At alliantgroup, we are actively helping restaurants take advantage of the federal funding that they are entitled to. Let’s work together to lay the foundation for a quick recovery as we take initial steps towards a post-pandemic future.
About the Author
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington, D.C. office. Prior to joining alliantgroup, Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman of the Finance Committee, Senator Charles Grassley, on tax legislation. During his tenure on the Finance Committee, Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law, including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform) and the Pension Protection Act.