The National Restaurant Association and all 52 of its state-level affiliates have asked the Internal Revenue Service (IRS) to adjust its tax collection process for restaurants that have yet to receive the advance refunds promised to employers as a form of pandemic-related financial aid.
The Employee Retention Tax Credit entitles companies whose operations were disrupted by the COVID crisis during 2020 to a credit of up to 50% of every full-time employee’s compensation, to a maximum of $5,000 per worker kept on the payroll. Under the CARES Act, the comprehensive COVID relief bill passed in March 2020, the IRS was obliged to provide the credit in the form of a cash advance. The employers’ tax bills for 2021 would be adjusted accordingly.
Essentially, the law called for extending the money upfront to help employers’ cash flow. Instead of waiting to have their tax bills reduced by $5,000 for each employee, businesses were provided the cash in advance.
But the IRS has fallen behind in processing the requests to get the credit in advance. According to the restaurant association, 83% of restaurants that applied at least six months ago for the tax break have yet to receive the money. Many intended to use the funds to pay the rest of their taxes.
In a letter to IRS Commissioner Charles Rettig and his boss, Secretary of the Treasury Janet Yellen, the association and its affiliates cite the example of a Texas operator who’s still awaiting the funds. Without those dollars, the communication states, the unnamed restaurateur will need to come up with $1.1 million to cover their tax bill by April 18, the deadline for all federal filers.
Because of situations like that one, the association is requesting that automatic tax collections be suspended until the backlog of ERTC requests has eased. It also implores the officials to push back the April 18 date for restaurants awaiting their credits and to provide some grace time for filers without requiring additional paperwork. Its final request is that the IRS communicate when an application for an ERTC might be processed.
“The ERTC has been a critical recovery tool for hundreds of thousands of restaurants, but far too many are still waiting for their refund from the federal government,” Sean Kennedy, the association’s EVP of public affairs, said in a statement. “As Tax Day approaches, many restaurants are about to be told to overpay their taxes, with the promise of a refund later. The system can work better for an industry on the ropes, and we are pressing the IRS and Treasury to act on our commonsense solutions.”
The ERTC has proven to be widely used within the restaurant industry, according to the restaurant association. The tax break provides the advance refund to businesses whose operations were suspended from March 2020 through Jan. 1, 2021, because of the pandemic.
In addition to restaurant associations from all 50 states, the signers of the letter included industry representatives from Puerto Rico and the District of Columbia.
The National Restaurant Association is the majority owner of Restaurant Business.
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