ERC for Hotels and Restaurants
The employee payroll tax credit has already given the hospitality and retail industries millions of dollars in refundable credits and cash; however, hotels and restaurants are still struggling financially. 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 advantages provided to hotels and eateries as a result of the COVID-19 pandemic. Although the economy is currently doing better, many companies in the hotel and restaurant industries still qualify for this tax credit because of their financial struggles in 2020 and the first three quarters of 2021.
The Employee Retention Credit is a financial benefit available to employers in the hotel and restaurant industry that may be more beneficial than payroll tax payments if they:
- saw significant losses in revenue
- were affected by government orders placing capacity restrictions on services and other gatherings
ERC Qualifications for Hotels and Restaurants
Lodging and eateries 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.
Hotels and restaurants that had to completely or partially stop some of their operations (such as in-house dining versus takeout) but were still able to conduct business as usual for other aspects of their operations may also be eligible for the ERC.
The employer should be regarded as an eligible employer if the inn or restaurant’s 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 hotels and eateries 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 hotels and restaurants 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.
Owners of hotels, motels, restaurants, cafes and other lodging establishments ought to think about checking their eligibility for the ERC. Due to the huge number of government restrictions limiting regular activity in 2020 and 2021, several organizations are receiving sizeable cash benefits in addition to the PPP benefits previously received.
