How employee retention tax credit can help your franchise recovery

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Businesses suffered tremendous losses in revenue due to COVID-19. In response to government shutdowns, congress enacted three key acts that could help franchises get back on track. However, we’ve noticed most owners are not taking advantage of these programs.

The employee retention tax credit (ERTC) was first implemented through the Coronavirus Aid, Relief and Economic Security (CARES) Act to provide tax credits to businesses that were continuing to pay and hold onto employees during the times of government shutdowns and restrictions. Since the CARES act was first enacted, the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA) have provided businesses with key opportunities to save thousands, however, many franchise owners are not aware of the amount of savings it can provide and assume they are not eligible.

One of our clients and the owner of Sunset Subway franchise, Christine Blank, said that she would have never known about the benefits from the ERTC program if it wasn’t for the Honkamp Krueger (HK) team. The benefits from the credit were tremendous help, she said. In total, Blank saved $450,000.

“There are so many businesses struggling because of the pandemic, but this tax credit can truly help them,” said Blank.

Eligibility and qualified wages

Franchising businesses are among the most eligible for the credits. Some of the best candidates for the ERTC are fast food industries, bars, restaurants, fitness centers and salons.

We are finding there is significant confusion surrounding this program and the ARPA changes to eligibility. The ERTC rules were expanded in 2021 through the CAA and ARPA and increased the number of wages eligible per quarter. If an employer had less than or equal to 500 full-time employees when compared to the same quarter in 2019, all wages qualify. For those over 500 employees, only the wages paid to employees not rendering services apply. Employees not rendering services also include employees that are sent home due to government restrictions or decline in business activity, but who are still receiving benefits from the employer such as insurance. Qualifications for the ERTC per quarter for employers are determined by one of two factors by the ARPA:

  1. Businesses that were under a government mandatory partial or full shutdown.

OR

  1. Businesses that can prove a 20% reduction in gross receipts/revenue of a quarter compared to the same quarter in 2019.

 

This is a change from both the CARES Act of 2020 and the CAA of 2020 in which businesses with 100 employees or less needed at least a 50% reduction in gross receipts when compared to the same quarter in 2019.

If you meet the requirements listed above, you are eligible for 70% credit of qualified wages up to a limit of $10,000 per quarter for all of 2021 until December 31, 2021. Additionally, new business that started after February 15, 2020 are eligible for a credit of up to $50,000 per quarter.

To apply for the ERTC, eligible employers can report their qualified wages for the quarter typically on the Form 941. It is recommended to have this done by a tax professional, so you don’t miss any important steps and lose out on the benefits. The process with a professional can be easy.

Dennis Arneson, owner of a Culver’s franchise and one of our clients, said that he is seeing a substantial amount of tax savings from the ERTC. Additionally, the process was easy!

“It was a clean, easy and efficient process,” Arneson said.

All Arneson had to do was provide the requested documentation and the savings were his.

Program interplay

For wages already covered by the paycheck protection program (PPP), the ERTC cannot be used. Additionally, wages covered under the families first coronavirus relief act (FFCRA) do not qualify for ERTC. However, don’t let this discourage you from claiming these available programs.

Denny’s franchise owner, Michael Bair, said that the pandemic caused their business operations to drop to 50 percent capacity, but with the help of the PPP and the ERTC, their business benefitted tremendously.

 

“We had no clue how much money we could receive,” Bair said. “But our accountant at HK helped us gain a substantial amount.”  

 

Bair didn’t know what documents or paperwork to provide his bank for the ERTC and PPP. HK took the initiative to contact his bank and handle everything so he could sit back and focus on his businesses, he said.

 

To better understand the interplay of these programs and how they can work to your advantage, we advise speaking to a professional to better understand how the interplay can work to your advantage.

ERTC guidance

We are hearing from many owners that their accountants aren’t notifying them of the opportunities the ERTC can bring to their business. If they don’t notify you about key business opportunities for financial help, what else are they missing? Additionally, some firms are taking advantage of vulnerable businesses by overcharging for ERTC services.

In response to hearing about the negative experiences of some business and franchise owners, our firm has allocated non-billable hours for complimentary calls with franchises across the country to determine ERTC eligibility. This offer is available to franchises until December 21, 2021. Additionally, we can look at other areas of your franchise such as your tax returns or business plans to prepare you for a successful future.

Contact HK partner Ryan Hauber at rhauber@honkamp.com for more information and to connect with our team of professionals that have dedicated the past year to the government COVID relief programs. To schedule an initial 15-minute complimentary call with Ryan please click here and pick an available date/time that works with your schedule.

Honkamp Krueger & Co., P.C. (HK) is a Top 100 CPA and business consulting firm in the United States that serves a variety of clients in all 50 states. Clients range from privately held organizations to Fortune 500 multi-national franchisor organizations across all industry sectors.