What Challenges Do Restaurants Run into When Filing the ERTC?

November 22, 2023
Dayes Law Firm

When the world shut down in response to COVID-19, restaurants that prided themselves on their ambiance and dining experiences suddenly couldn’t allow people to dine indoors. Many had to close doors entirely, and this meant a significant drop in revenue. 

Thankfully, the government introduced the Employee Retention Tax Credit as a COVID relief measure for struggling businesses. However, every industry comes with ERTC challenges. When filing for the ERTC for restaurants, what can you expect? 

The team at Dayes Law Firm has extensive experience with the ERTC and is happy to help you through this process.

What Is the ERTC?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act introduced the Employee Retention Credit (ERC), a.k.a. the Employee Retention Tax Credit (ERTC), in 2020 to encourage businesses to keep employees on their payrolls, even with dwindling sales. The credit compensates employers for a percentage of wages paid to employees during qualifying quarters. 

The government modified the ERTC with the Consolidated Appropriations Act in 2021 to offer more aid by expanding the eligibility requirements. While this act expanded the ERTC through 2021, the Infrastructure Investment and Jobs Act later limited it to the first three quarters of 2021. 

How Do Restaurants Qualify for the ERTC?  

To qualify for the ERTC, your restaurant must pass the gross receipts test or the suspension of operations test. 

To pass the gross receipts test, you must have seen a significant decline in revenue during 2020 and 2021. When comparing each quarter to its corresponding quarter in 2019, you must have experienced a 50% decline to qualify for 2020 and a 20% decline for each quarter in 2021. 

To qualify using the suspension of operations test, your restaurant must have shut down partially or fully from a government-mandated order. If you’re eligible for the ERTC, you can claim it by filing Form 941-X. 

Challenges Restaurants Face When Filing for the ERTC 

Restaurants faced unique challenges during COVID-19, and it’s no different when filing for the ERTC. Claiming the ERTC for restaurants is still possible, however. 

Owning Multiple Restaurants

Many restaurant owners have several restaurants. This can make claiming the ERTC, calculating wages, and accounting for qualifying employees more difficult. However, for entities with one shared owner, the Internal Revenue Service considers them one controlled group. This means you can assess their eligibility for the ERTC as an aggregate. 

Employee Fluctuation

The restaurant industry has a reputation for high turnover rates. While this will vary depending on your establishment, it can make calculating qualified wages more difficult. The IRS defines small businesses as those with 100 or fewer employees in 2020 or 500 or fewer in 2021. Small businesses can collect 50% of all employee wages up to $10,000 per employee for 2020 and 70% of the same for 2021.

However, larger businesses can only claim wages they paid to employees unable to work during each qualifying quarter. 

New Restaurants

If your restaurant opened in 2019, you may not have as many quarters to compare your 2020 and 2021 revenue to. For the purposes of the ERTC, you may use the first quarter you were open in 2019 to calculate revenue decline. 

Similarly, if you acquired a restaurant recently, you can still claim the ERTC for the restaurant if the employer identification number (EIN) didn’t change. However, if you bought the restaurant as an asset, the EIN changes and you can only claim the ERTC for quarters during which you were the owner. 

Overcome ERTC Challenges With Dayes Law Firm

Our ERTC recovery team has recovered over $250 million in ERTC benefits for our clients. We’ll help you navigate claiming the ERTC for restaurants. Call 800-503-2000 today to schedule a free consultation