For businesses who applied for COVID-related employee retention tax credits (ERTC) in 2021, there may be a severe cash flow challenge occurring for those waiting an average 6 to 10 months to receive the ERTC payment. Under ERTC rules, an eligible restaurant cannot take normal federal tax deductions for 1) payroll expenses and 2) healthcare group benefit expenses during the applicable calendar quarter if those payments were considered eligible wages for ERTC. While this increases the restaurant’s tax liability, the restaurant would have those costs more than offset by an ERTC payment.
However, the restaurant may face a liquidity crisis if the federal tax bill is due before receiving an ERTC payment. Members are advised to plan for this scenario if they fall into this criteria. On Nov. 15, 2021, the National Restaurant Association urged the IRS and Department of Treasury to speed ERTC payments and delay related taxes. A national grassroots petition on these ERTC recommendations has over 5,300 signatories, and we encourage members to add their name.
The Association also strongly supports the bipartisan “Employee Retention Tax Credit Reinstatement Act” (H.R. 6161). The bill, introduced by Reps. Carol Miller (R-WV) and Stephanie Murphy (D-FL), would restore the fourth quarter of ERTC.