January 22, 2021
Since the start of the coronavirus pandemic, restaurants have been among the hardest hit sectors. And with a growing number of restaurant workers out of work and restaurateurs forced to shutter their locations, the U.S. government has passed stimulus funding to offer a lifeline.
Whether the recently passed stimulus and second-draw PPP funding will be enough to provide restaurants with the relief they need remains to be seen. But it’s a start. And it’s something all restaurant owners should understand and consider taking advantage of in the coming weeks.
Read on for more on the new relief available to restaurants and how companies can benefit. And as always, please contact a Perlson LLP professional at 516-541-0022 to see how you can take advantage of the relief.
PPP Monthly Payroll Amount
Although other sectors are only allowed to take 2.5x of their monthly payroll amount for PPP funding, restaurants are allowed to multiply their monthly payroll by 3.5x under the new PPP rules. The amount is based on the average monthly payroll in 2019 or the monthly payroll ending 12 months before the origination of the PPP loan. Additionally, restaurants must employ fewer than 300 employees. For restaurants and hotels with the NAICS code 72, the size requirement is set to 300 employees per “physical location,” allowing restaurants with multiple locations to take advantage of multiple PPP opportunities.
Limitations to Keep in Mind
The first PPP round allowed companies to take up to $10 million in funding. This time around, restaurants will be limited to $2 million PPP loans. Additionally, businesses must demonstrate that they realized a 25% drop in revenue in any calendar quarter in 2020, compared to the same period in 2019. To qualify for the second draw PPP, restaurants need to have used all of the funds from their first PPP loan disbursements by the time they receive their new loan.
In order to have the total amount of the PPP loan forgiven, restaurants must use 60% of the proceeds for payroll. The remaining 40% of the proceeds may be used for other expenses. Additionally, the new second-draw PPP allows companies to use funding for PPE, cleaning products, and supplier costs, and apply that amount towards their forgiveness threshold.
Tax Deduction Considerations
Importantly, restaurants will be allowed to deduct the expenses they paid with PPP funding, creating an important — and positive— impact on their tax liability.
Employee Retention Tax Credit
The Employee Retention Credit has been extended to July 1, 2021 and companies can now take a 70% credit on qualified wages up to $10,000 (up from 50%).
The recently passed legislation also allows companies to both have a PPP loan and benefit from the credit.
For those taking the credit on 2020 wages, any company with fewer than 100 employees will qualify. In 2021, companies with up to 500 employees can take advantage of the credit. To qualify, restaurants must demonstrate a 50% drop in gross receipts for 2020 or 20% in 2021 can qualify.
Business Meal Deductions
In a potentially important decision to benefit restaurants, businesses will be allowed to deduct 100% of their food and beverage expenses, as long as those expenses are incurred at a restaurant.