Restaurant businesses have a new opportunity to take advantage of the employee retention tax credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, even though Congress terminated the credit Sept. 30, 2021, three months earlier than scheduled. Certain restaurant businesses that thought they were ineligible for this tax credit may be entitled to take advantage of it for wages paid up until this COVID-19 economic incentive ended. Such potential opportunity is a result of IRS guidance that was published in August 2021, the month before the credit ended.
The employee retention credit initially allowed a 50% credit for wages paid for the second through fourth quarters of 2020, and then a 70% credit for wages paid for the first through third quarters of 2021, if the business either had its operations suspended due to COVID-19-related government orders or had a significant decline in gross receipts. Wages paid with a loan under the Paycheck Protection Program were not eligible for the credit. The credit was limited to a maximum of $5,000 per employee for 2020, but this cap was increased to $7,000 per employee per quarter for the first through third quarters of 2021 (total maximum credit of $21,000 per employee for 2021). The credit is applied against the employer’s share of payroll taxes, and to the extent the credit exceeded the employer’s share of payroll taxes, the IRS refunds the difference to the employer.
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