ERC for Bars
The Employee Retention Credit (also known as “ERC”) was launched in March 2020 to provide incentives for businesses to keep employees on their payroll. It is now one of the most substantial tax benefits given to restaurants and bars as a result of the COVID-19 pandemic. Even though the economy is currently doing better, many businesses in this industry still qualify for this tax credit because of their financial struggles in 2020 and the first three quarters of 2021.
Employers in the hospitality industry, such as pubs and restaurants, may benefit from the Employee Retention Credit, a cash incentive that may be more beneficial than payroll tax payments if they:
- saw significant decreases in revenue
- were affected by government orders putting capacity limitations on services and other gatherings
ERC Qualifications for Bars
Bars whose operations are entirely or partially interrupted due to COVID-19-related restrictions on commerce, travel, or group gatherings may be eligible for the ERC. The employer is required to pay employees wages that are eligible during that period as long as the government rules are in effect.
Taphouses or bars that had to completely or partially suspend a portion of their business operations but maintained normal operations for the rest may also be eligible for the ERC.
The bar or taphouse should be regarded as an eligible employer if its gross receipts in the first, second, or third quarters of 2021 are more than 20% lower than the organization’s gross receipts in the comparable calendar quarter of 2019. The criteria for 2020 may be more challenging to achieve because a larger than 50% reduction in gross receipts must be shown.
By 2021, 500 or fewer full-time employees would be required to qualify for the ERC. Before this, the ERC calculations only applied to bars and restaurants with 100 or fewer full-time employees (as estimated on average in 2019).
Credit Rate
- 2020 Credit: Each employee will receive 50% of their qualified pay, which includes any employer-paid healthcare benefits. $10,000 is the maximum eligible pay per employee.
- 2021 Credit: For the first, second, and third calendar quarters, each employee was entitled to receive 70% of their quarterly qualified wages, which included any healthcare benefits given by the company. Each employee may receive up to $10,000 in eligible pay per quarter.
PPP Loan and RRF Recipients
The ERC is also open to bars that have received loans through the Paycheck Protection Program (“PPP”). When the ERC was first established as a component of the CARES Act, it was prohibited for any organization to submit an ERC application if it received money from a PPP.
The restriction against PPP customers receiving ERC benefits was later repealed when the ERC was later extended and strengthened as part of the Consolidated Appropriations Act in December 2020. The IRS ruled in August 2021 that neither PPP loans nor Restaurant Revitalization Funds (“RRF”) should be taken into account for determining eligibility for your taphouse or bar.
Drinkery owners should consider determining whether they are eligible for the ERC. Due to the huge number of government orders limiting regular activity in 2020 and 2021, several organizations are receiving sizeable cash benefits in addition to the PPP benefits already received.
