 Welcome to Restaurants Hawaii on Think Kekawa'i. I am your host, Cheryl Matsuoka, the executive director of Hawaii Restaurant Association. And today I have two guests and we'll be discussing the employee retention credit with the team of Frost Law. So first, ladies first, Rebecca, could you please introduce yourselves? Yes, absolutely. Thank you so much. We really appreciate being here and being able to educate your audience. So I'm a tax attorney, which I know is very since-lating. People get very excited to hear about tax attorneys. But prior to 2020, my career focused on helping businesses that are kind of on the bubble of viability. So small businesses be able to work through audits, pay payroll tax liabilities, sales tax liabilities and continue working and helping their employees and keeping their doors open. When COVID hit, we had to bear down on the CARES Act and PPP and ERC and FFCRA and all of those things to make sure that these businesses were able to maintain and stay open during the pandemic. So doing so, we were able to really dig in and help our clients through the Paycheck Protection Program and the employee retention credit and the FFCRA to get them and the Restaurant Revitalization Fund to be able to keep them open. And Peter and I do very similar work, but I'll let him introduce himself. Oh, I think you laid the groundwork very well. I mean, we have for the last 18 going on 24 months now been in the trenches on this CARES Act stuff. And as I think we'll get into, I mean ERC and the major legislative changes that have come three, four times that have really kept us on our toes. Thank you so much, Peter. So Rebecca, do you wanna go ahead and state the disclaimer before we move on? Yeah, absolutely. So this is not legal advice. We're here for general education and we are here to help you. If you've got questions, we're able to answer them offline with no problem, but this is merely to educate, this is recorded. And again, we are cross over to tax attorney. Thank you. And any questions that our viewers may have, please email them to questions at thinktecawaii.com. So today we're digging deeper and receiving the current status on the employee retention credit, fondly known as ERC. So let's go ahead, team, and let's dig down. The ERC was updated, I found out, was it a week and a half ago, Rebecca? So the house was voted in pass, reinstating the employee retention credit for fourth quarter. So as most of you all know, when all this started, you couldn't use PPP and ERC together and then it was expanded again in December of 21 where you couldn't use the two programs together and they actually made ERC much bigger than it was before. You know, in 2020, it was about $5,000 an employee. That was the max for 2021 and expanded to $7,000 per employee per quarter, which was the max. And it started with the first two quarters and then expanded the whole year. And then the infrastructure bill cut it short in the middle of the fourth quarter, even though restaurants were still hurting and there's a new wave kind of on the heels with Omicron, the fourth quarter ERC was taken away. And so the restaurant lobbyists and people who are trying to help the restaurants get through all these things, I'm sure all these different organizations are working through to get this pass to help restaurants get back that ERC for fourth quarter of 21, where a lot of places still felt either restrictions from government order or from revenue decline. So last, or a week or two ago, the house passed that legislation to reinstate ERC for fourth quarter. My understanding is that there's about seven holdouts in the Senate that need to go from no to yes in order for it to pass the Senate. So that's kind of like the next roadblock as far as getting this legislation that's so important to be passed. And I know at least like some other organizations are going lobbying Congress directly to get this moving. Very good, thank you. So Peter, do you wanna give us any updates or discuss? Well, I guess the only thing I'll add to what Rebecca said was I think that the support may be there already, but the issue that they're having to overcome is getting closure in the Senate to actually bring it to a floor vote. There may actually be the majority vote and you're having to get over that 60 vote threshold to get to the actual floor vote. So hopefully that happens soon. Agree, thank you very much, Peter. So the ERC was never limited by available federal funds. So any business that qualifies and applies can still receive the ERC relief. Do we wanna go ahead and start discussing some of those things, Rebecca, as to what businesses have to do to qualify and apply who have not done it so far? Absolutely, so in the beginning of all this, a lot of accountants and tax professionals were advising their clients that if their revenue went up, they weren't gonna be eligible for ERC. And that is simply not the case as hopefully most of you know, that as long as you had capacity restrictions, which my understanding in Hawaii lasted quite a while, through October, right, of 21, then you will be eligible for the ERC. So revenue decline does not indicate whether or not you're able to receive this relief. And the way this kind of operates is it's based on the refund statute. So the first period that's eligible for ERC was the second quarter of 2020. That return is due July 31 of 2020. So in order to receive the ERC or to be eligible, you need to apply for the credit no later than July 31 of 2023. So we have some time, but it's certainly something you should get on because it is taking the government about 10 months to process these claims. It's really, really important to get in line so that way you can get the relief now while you're eligible, while it's gonna be the most impactful. Thank you. And so anyone who has any questions, all of our members and subscribers, please reach out to me at infoatHawaiiRestaurant.org. And then I'll put you in touch with this team at Frost Law. So Peter, do you have anything to add to that? No, just to clarify, look, this is a credit that's based on wages that you paid to your employees while the pandemic was ongoing. Rebecca touched on a couple of different ways to qualify. One is based on a decline in gross receipts for 2020. That decline needed to be 50% in 2021. It needed to be 20% and it's a comparison of what was going on in 2019 to either 2020 or 2021. But what we're finding, again, Rebecca mentioned that you've got some professionals out there saying, well, you did really good in 2020 and 2021. Your receipts went up, right? You had DoorDash and these other delivery services that were making it, your restaurants more accessible or there was a big push to the floor. Your gross receipts went up because you had to incur all of those extra expenses. Right, there was a big push to support restaurant through carry out or something like that. And none of that matters for the second way to be eligible. And that is where you had some sort of a governmental order that was restricting your business operations. I'll steal Rebecca's example here. We think of it like imminent domain, right? The government wants to build a highway through your backyard and there is some sort of a taking there. And you otherwise had a situation where these restaurants were ready, willing and able to serve the public and the government said, no, you can't do that. And the result of the employee retention credit is really to reward the businesses for doing the right thing and keeping people employed. One addition to that, when we're talking about wages paid to the employees, one benefit and we keep saying restaurants, we mean any food service industry. You are a restaurant, you're a bar, you're a winery. We have clients that are breweries where they had just opened and places that opened in like January of 20 and then got like socked by being a brand new business in the middle of COVID. All of those places that were impacted by capacity restrictions are going to qualify as long as it's more than nominal. And so every restaurant that had a dining room that's more than 10% of its sales or 10% of its hours worked, you're gonna qualify. So that's like one item. All of you, we say restaurant, we mean all of you. Bakery, coffee shop, whomever you are where you had capacity restrictions. Number two is Peter said wages. And the benefit of having the type of industry that you're in is that tips count. So money that you never actually expended on behalf of your employees, you're gonna get a tax credit on. And we'll explain like what a tax credit is because it sounds boring and something that's gonna carry forward and not something that's gonna really impact you very much but Peter will explain just exactly what we mean by like tax credit. This is all built on existing tax law. So these restaurants, again, we're using that term broadly. But it is a credit based on wages paid but it's a credit for employment taxes. It's just built on what's already there and built on your quarterly 941 forms that you pay or that you file and you pay taxes over. But the credit in many circumstances, most circumstances is in excess of the amount of tax that would need to be paid. And so what this is doing is it is resulting in a actual refund, a check coming from the government to the restaurant to the employer, based on wages paid, but it is a check into your pocket and into the coffers of the business. Yeah, I just wanna reiterate that point because it's really important. It's the most important thing we're gonna say is it's a check to the business that doesn't have restrictions. It's not PPP where you have to use 1.87% on utilities and X amount on wages or anything like that. It is a check that you can do with what you please. It is for any expense you deem worthwhile. So this is really the biggest COVID relief program that was implemented through the CARES Act and anything like that. It's bigger than PPP, bigger than FFDRA. And frankly, because RRF, the rollout was so bumpy, we'll say, I think it was better than that. This doesn't have to get paid back. It's just a credit. There are a couple of catches that Peter can kind of go through as far as things you need to be mindful of. You can use it with PPP, but you can't use the same dollar twice. So I can't pay Peter $40,000 and take all of my ERC of $30,000 and then take another $20,000 for PPP. So you've got to segregate your wages. And this is kind of where a tax professional is going to be helpful, whether it's us or your CPA or whomever you're using, but that's something that you should kind of have in a work paper to show PPP wages, ERC wages, FFDRA wages, just have everything all separated. So that way, if there ever is an issue, you're able to show it. And then there's a couple other catches that he'll go into. Yeah, I mean, the biggest catch that everybody should be aware of is there is, you know, there is an existing code section 280C that basically says that, you know, if you receive a credit based on wages paid, you end up paying tax on the credit itself. And so restaurant owners are going to have to amend the tax return and pick up additional income. But even if that's the biggest catch, it still is worth it, dollars and cents-wise, to pursue the credit if you're eligible. And so if you are restricted and there is a government order and it can be federal, it can be state, it can be a local restriction. If your municipality was more restrictive than the state of Hawaii, you know, that's really what it comes down to. But it is still a lucrative credit and still worth pursuing, even though you end up having to pay additional tax on the amount of the credit. Look, there are going to be audits related to this. And going back to what Rebecca and I do as a day job before the pandemic and through the pandemic, I mean, the stuff is still happening. But there's going to be audits, you know, you're going to want to make sure that if you qualify based on grocery seats, you can prove that you had a decline in grocery seats. If you qualify based on a full or partial suspension, and I guess, you know, full or partial suspension, you've got to go back and you've got to find a government order. You know, at least where we're from and where, you know, we had, you know, initially been looking at some of these things, restaurants were completely shut down to indoor dining at first. And it's slowly loosened up and then you had a capacity restriction. Capacity restriction still can impact the more the nominal portion of your business. Even when they got rid of, you know, formal capacity restriction, there were still situations where they would say, well, there's not necessarily capacity restriction, but you have to keep tables six feet apart. And that still created a more than nominal effect on your ability to, you know, provide goods and services to your customers. So there's a lot of ways to qualify. When we're out speaking to other industries, you know, for better or worse, restaurants is sort of the quintessential example of someone who is very well situated to take advantage of this credit. And if you're hearing about this for the first time, you're not to be faulted because again, the CARES Act initially said, you can't get both. You can't do PPP and ERC. And at that point, PPP was worth over $20,000 or I guess it's at point $15,000 per employee. And this max was $5,000 for employees. So nobody was paying attention to it. It wasn't until the legislation changed in December of 2020. And then again in March, 2021, that people started to pay attention to this. And so, you know, it's time to slow down, think through what you've got going on, because you may be eligible for this. Well, I mean, I think the restrictions in Hawaii would say that, you know, 98% of our restaurants, you know, our broad term for these restaurants are gonna be eligible. And they're gonna be eligible for all quarters because I believe the restrictions lasted, you know, through third quarter. So the eligibility piece is there. How much is something different? And that's kind of where you're gonna want help to make sure you've got, like I said, those work papers to show what you've got for PPP, how you spent it. Where did it go? How much did you claim in forgiveness for wages and that kind of thing versus what you'll claim for ERC? Another thing we try to do for our clients that we think is best practice. Again, whether you go to your accountant or whomever is to put together and writing, you know what Peter was saying before, like these are the orders. This is how it related to my business. This is how it was restricted. And then you keep that all on a file altogether. So you've got your like work paper, you've got your opinion letter, you've got your wages, you've got your payroll, you've got all your information. So that way, if there ever is an issue, then you're good to go. I mean, we are seeing people that are company that are getting, you know, lots of money, millions of dollars and weren't aware of their eligibility. And frankly, we're seeing people who were aware they're eligible, who maybe went through their payroll company or had their bookkeeper do it. And we're going back through and we're finding credit, we're finding more money there. So it's something that you really, this isn't something to just kind of half-ass and move forward through the process. When you're talking about like, frankly, once in a lifetime, government of credit that's going to be able to help your business, you know, carry through, it's worth it to take a second look and just make sure you're getting everything on the table that's there. And we've also seen it go the other way where payroll companies way over, you know, cut the credit and to see like what was actually proper. It's much easier to fix that problem now before you've gotten your money than it is, you know, afterwards. All of this is so valuable. I mean, this is such valuable information to all of our viewers and members, you know, please reach out to Foss Law because you don't know, right Rebecca? You just don't know until you go through the process. So I mean, what we always say is, you know, you go into the business you go into because you're an expert in that field, you became a wedding cake baker or designer because that is your passion and that's what you're good at and you're able to do those things really well. Peter and I went into tax. So feel bad for us for like our upbringing and all of those other things but otherwise like understand that, you know when I have a plumber, I hire, like if I have a plumbing issue, I hire a plumber. You want an expert in the field to be able to look through these issues for you. So that way you've left of a headache later. Some things are DIY and some things really aren't and I would never try making a wedding cake or opening a brewery or anything along those lines and for certain things, especially for this type of thing when we're talking about how important it is but also, you know, how serious it is and how it could be a negative if done improperly. It's really something that you want a professional to take care of. Absolutely. Well, go ahead, Peter. Well, I'd say while we're talking through, you know there's some more catches here, right? And things that we work through with our clients and you know, I think a couple of things that are unique to the restaurant industry again, using that term broadly is that oftentimes you have restaurant owners who are invested in more than one project. You know, there may be a couple of different restaurants or a couple of different locations with different investment groups, things of that nature. So what I mentioned earlier is that this is built on existing internal avenue code stuff and there are ideas of controlled groups and when do you have to aggregate one business with another with another. And truthfully, this can go beyond, you know restaurant specific industry. You could have investments in other projects not related to the food service industry. And depending on common ownership and things of that nature, it can work in your favor, it can work against you, right? You could have a situation where a controlled group qualifies based on a partial shutdown related to a restaurant but you have another name it, you know any other group, any other business with employees. Yeah, anything. Right, manufacturer that could become qualified and have qualified wages based on the treatment of the entire controlled group. So that's one area where if you've got restaurant owners who are invested in multiple projects you need to slow down and work through it. Again, it's not necessarily bad news, it could be good news. The way that it could be bad news is that there are ideas in the CARES Act related to how many employees you have and how many full-time employees specific. And in 2020, if you had more than 100 full-time employees or in 2021, if you had more than 500 full-time employees you need to slow up because it's only considered a qualified wage if you pay these individuals not to work. Couple of important points related to that though. First is that the IRS specifically has said that it is full-time employees only and it is based on the Affordable Care Act. You know, definition of 30 hours per week or 130 hours per month. The Joint Committee on Taxation has taken a different position but the IRS has doubled down saying that it's just full-time employees. It's just an area where you need to be aware of employee counts could come into play there. Still, even though, you know, if you had over 100 full-time employees or over 500 full-time employees you could still both pay someone to work and not work. So it's not necessarily a cliff. These are just issues that, you know, if you have large numbers of full-time employees and you just slow up working with a professional maybe, you know, a good way to go to work through some of these issues, aggregation, employee count, because they matter based on the CARES Act. Thank you. It seems as though I'm getting the three-minute warning here. Before we sign out, Rebecca, could you please once again state the disclaimer? Absolutely. So this is not legal advice. We are here to generally educate your audience. And again, we use the word restaurant to mean every basic type of food service industry. Bar, restaurant, concert hall. I mean, any type of company that had restrictions is going to have a question of eligibility of whether or not you're going to be eligible. So Peter and I's clients, they run kind of the gamut. We've got dentist office, chiropractor, I think a small private school where they had capacity restrictions and weren't able to operate as intended. You know, all different kinds of businesses that you wouldn't necessarily think are eligible actually can receive the credit. So it's something to think of if you own other businesses. Additionally, you might have already gotten it for your restaurant, but not thought through some of these other issues for some other businesses that you're involved with. Thank you, Rebecca. And thank you so much, Peter and Rebecca, for joining us today because this is such valuable information. And again, to all of our viewers, don't hesitate. Don't leave money on the table. Please reach out to Frost Law. Reach out to me at info at HawaiiRestaurant.org. I'll put you in touch with the team at Frost Law because I don't want you to leave any money on the table. I want you to just go through the process and you'll be so, I mean, so grateful if you find out that you're receiving a check. Again, my name is Cheryl Matsuoka, the executive director of Hawaii Restaurant Association. Hawaii Restaurant Association is the voice of Hawaii's restaurant and food service industry. Thank you, everyone. I'll see you in two weeks. Thank you. Thanks. Thank you so much for watching Think Tech Hawaii. If you like what we do, please like us and click the subscribe button on YouTube and the follow button on Vimeo. You can also follow us on Facebook, Instagram, Twitter and LinkedIn and donate to us at thinktechhawaii.com. Mahalo.