In order for restaurant owners to receive the biggest financial and tax benefits, it is important to evaluate individualized goals and decide what works best for your business. Working with an accountant familiar with the restaurant industry can be a crucial step in ensuring your restaurant survives COVID and is equipped to withstand any future crisis.
It is important for restaurant owners to keep financial records up to date and maintain accurate statements. When you are dealing with current numbers you can make better, more effective business decisions. Restaurant owners should be aware of their tax liabilities, including payroll and sales taxes, and obligations for accurate financial statements. These statements are used when filing annual business tax returns, which have the potential to yield benefits for restaurants at the federal and state levels.
As a restaurant owner, it is helpful to be aware of the kind of liabilities your business has, and make sure that you have adequate assets to pay them. Many businesses set up separate bank accounts as a place to deposit funds for unforeseen situations.
Federal and State Programs for Financial Aid
There are significant programs at both federal and state levels, where restaurant owners can receive financial assistance. It depends on the type of establishment, but most restaurants can benefit from some type of financial aid such as the Payroll Protection Program (PPP) and Economic Injury Disaster Loans (EIDL).
Payroll Protection Program
The PPP was part of the Cares Act of 2020, which was meant to provide relief due to COVID restrictions and aid in economic security. The PPP consisted of loans meant for restaurants to pay employees and cover other significant costs. Although the program ended as of May 31st, 2021, there are still businesses that will be submitting an application for forgiveness of the loan to the Small Business Administration (SBA).
Economic Injury Disaster Loans
Another available option for restaurants is to submit for a Small Business EIDL (Economic Injury Disaster Loan). These loans cover the same criteria as the EIDL Loans, which previously existed on their own, but are now also written into the CARES Act to include loan availability to small businesses impacted by the COVID crisis.
The difference between EIDL Loans and PPP Loans is that they include an interest rate of 3.75 percent, and a minimum term of 30 years to pay back the loan. Loans that are taken in excess of $200,000 under this program must be guaranteed by any small business owner that has more than a 20 percent ownership interest in the applicant. EIDLs are processed directly through the Small Business Administration and are tantamount to a mortgage loan, wherein you can get a maximum loan up to $2 million. There are advance payments of these loans available to those who qualify.
FICA Tip Credit
On the Federal level, restaurants can be granted the FICA Tip Credit, which allows employers to take a tax credit on a portion of the employer FICA taxes paid on employee tips. The FICA Tip Credit report from your payroll service provider is what will be used to calculate the tax credit. These numbers add up and can be fairly substantial for restaurant owners.
Employee Retention Credit
Another Federal tax option for restaurants is to receive the Employee Retention Credit, a fully refundable tax credit that can be claimed based on employee wages paid. Originally this credit was due to expire at the end of 2020, but businesses can still apply until the end of December 2021, thanks to the American Rescue Plan Act. In 2020, businesses could have received the maximum credit of $5,000 per employee, and now in 2021, that number is up to $7,000 per employee per quarter. That is a substantial amount of money to help restaurant owners.
One example of a state benefit for restaurants is in New York, where the New York State Restaurant Resiliency Program was implemented. This is a $25 million grant program that provides funding to restaurants that chose to provide meals and food to people living in distressed or underrepresented communities. Restaurants in other states should look out for these types of programs and benefits, as it is very possible that they are available.