Is your business one of the thousands hit hard during the COVID-19 pandemic? If so, you may qualify for a tax credit for businesses called the ERTC. This credit, also known as the Employee Retention Credit, can provide business-saving money for employers who kept workers on payroll throughout the pandemic.
But what if you own multiple franchises? Can you claim credit for all of them? Here’s what to know about the ERTC and multi-franchises.
What Is the ERTC?
The ERTC is a refundable tax credit that gives business owners up to $5,000 per employee for 2020 and up to $7,000 per employee per quarter for 2021.
To be eligible for the credit, you’ll need to meet at least one of the following requirements:
- You had to at least partially close down because of a government order limiting commerce, travel, or group meetings
- You had a big drop in gross receipts. For 2020, a “big drop” means a drop of at least 80% compared to the same quarter in the previous year. For 2021, you’ll need a drop of 20% or higher.
Considerations for Franchise Owners With Multiple Franchises
Understanding how the ERTC and multi-franchises work can be confusing. If you have more than one business, do you qualify?
Owners of multiple franchises may be eligible for the credit. However, whether or not you qualify will depend on the number of employees you have across all franchise locations.
To qualify for the 2020 ERTC as a small employer, you must have 100 or fewer employees. That number goes up to 500 employees for 2021. Technically, you can qualify if you have more employees than that, but you can only claim the credit for those who weren’t actively working for you in 2020 and 2021.
You will need to add up the number of employees across all franchise locations. This is because you must claim the credit for all your businesses, not just one.
How the Rules Affect Business Franchises
If your business meets the employee cap, you’ll need to consider the following rules:
- You cannot “double dip” and claim the credit for the same employee more than once. For example, if Tom works part-time at your restaurant and a few hours per week at your bar, you may not count the wages for those different roles separately.
- The gross receipts test applies to your entire enterprise. To illustrate, let’s say you had three businesses that pass the gross receipts test but two that don’t. Normally, you wouldn’t be able to claim the credit for those two ineligible businesses. But under IRS rules, as long as one business you own qualifies, all of them do by default.
- The suspension of operations requirement applies to all of your businesses, too. For instance, assume you own a store in Sacramento and another in Dallas. The Sacramento location had to close down because of a government order, while the Dallas store did not. Even though the Dallas location wasn’t affected by a closure, you can still claim the ERTC for employees who worked there.
Learn More About the ERTC’s Impact on Businesses
Do you have more questions about how the ERTC and multi-franchises work? At Dayes Law Firm, we know trying to figure out the ERTC can be confusing for business owners. Call us at (866) 567-4510 to find out more about this credit and determine whether you qualify.