How U.S CARES Act can help your restaurant and Staff
United States - Covid 19
Businesses all over the U.S in particular food service businesses like cafes, bars, and restaurants had been eagerly waiting to see how the government was going to step up and help during the coronavirus pandemic that has gripped almost every state in America.
Since the 1st of March the hospitality industry as a whole has lost over 25 billion in revenue with over 3 million people out of work, and those number are expected to increase sharply again during April.
On Friday, March 27, Trump signed the congress passed bill Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The $2.2 trillion dollar relief package Included:
10 billion from the CARES Act will be allocated toward emergency grants which are intended to cover operating costs. The maximum amount for grants is $10,000 per business, this alone will be significant to smaller restaurants with an immediate need for support.
350 billion in loans for small businesses with loan forgiveness provisions; and 250 billion in enhanced unemployment insurance.
The good news is that this relief package contains a number of provisions specific to supporting foodservice establishments like restaurants, cafes, and bars, and their staff.
CARES Act - Help for restaurants and their staff includes:
Paycheck Protection Program[PPP] - payroll
The PPP covers restaurants, cafes, bars, (also other businesses) with fewer than 500 employees.
How much? Restaurants who meet the minimum criteria, this being based on last year’s average monthly payroll expenses, or up to $10 million, whichever is less may be eligible for unsecured loans for 2.5 months’ worth of payroll costs.
Banks and other financial institutes will be administering the PP Program, The program has been backdated to February 15, 2020, to encourage you to rehire staff that you laid off and may be used for:
- Salaries, wages
- Cash tips (or comparable)
- Vacation, parental, family, medical, or sick leave pay
- Severance pay
- Health care benefits, including insurance premiums;
- Retirement benefits
- Local payroll taxes
More good news for restaurants (including other businesses) is the loan covers the period from 15 Feb to 30 Jun 2020, and any part of the loan not forgiven under the SBA Loan Forgiveness program can be passed forward at 4 percent interest for up to 10 years.
Loan forgiveness.
Any restaurant (also other businesses) that receives a loan will also be eligible for loan forgiveness on the amount equal to that spent during the eight weeks following the start date of the loan:
- Payroll costs (this may include staff that earn over 100k but prorated);
- Interest payments on mortgages (incurred before to February 15, 2020);
- Rent including lease agreements in force before February 15 2020
- Utilities for services that began before February 15, 2020
The amount of the loan forgiven decreases if you have less staff than you did a year ago or if you reduced staff pay by 25% or more (as a result of hardship caused by COVID-19 (coronavirus).
Forgiveness Loan Formulae:
Forgivable portion (FP) = Payroll costs (PC) + appropriate mortgage interest payments (MIP) + covered utility payment (UP)
FP = PC + MIP + UP
Employee Retention Tax Credit - Tax breaks
Restaurants (also other businesses) that had closed or whose business declined 50% or more compared to the same quarter last year due to COVID-19,(coronavirus) may be eligible for a refundable payroll tax credit for 50% of wages paid by employers to their staff.
The credit applies to the first $10,000 of compensation paid, including health benefits, between Mar 13 2020 and Dec 31 2020. What wages qualify varies depending on the number of staff you have.
Qualified Improvement Property.
Restaurants can now permanently depreciate certain renovations over 15 years instead of having to depreciate improvements over the 39-year life of the building.
This could increase your access to cash flow by allowing you to amend your prior year’s tax return.
Modifications for Net Operating Losses.
The Tax Cuts and Jobs Act (TCJA) provided that Net Operating Losses could no longer be carried backward to prior tax years, but must now only be carried forward. Modifications under the CARES Act now allow that the net operating losses from 2018, 2019, or 2020 can be carried back five years, and it temporarily removes the taxable income limitation to allow a net operating loss you incurred to fully offset income.
Tipped employee wage adjustment.
As a result of COVID-19 and its spread throughout the U.S table service has largely ceased to exist, and as a consequence servers are no longer able to earn tips. What you can do is base your payroll costs on the wages you are currently paying wait staff for the jobs they’re doing now, instead of the wages plus gratuities they received before COVID-19.
Tax filings/payments.
The new tax filing deadline will be extended out to July 15 from April 15, and you can postpone estimated tax payments (both personal and business) until October 15, 2020