 Aloha and welcome to Restaurants Hawaiʻi, I am your host, Cheryl Matsuoka, the Executive Director for the Hawaiʻi Restaurant Association. Joining me is Hawaiʻi Restaurant Association's Executive Director, Siobhan Garcia. Hi, Siobhan. Hi, Cheryl. Thank you. I wanted to introduce Ryan He is the Assistant Controller for Altress and Simplicity HR. Welcome, Ryan. Hi there, thanks for having me. Thank you for joining us, Ryan. Today we're answering questions regarding the employee retention credit, also known as ERC. Now, to clarify, I just want to state, you know, Ryan and I, we're just having a conversation. HRA is not a tax consultant or a tax professional. Today's discussion is a general discussion and business owners, you need to consult with your own tax professional on your specific situation. So the ERC basically, I want to frame it, what is the employee retention credit? The ERC will not run out of funds, nor does it need to be paid back. It is a tax credit. Hawaiʻi Restaurant Association has been looking for more ways to assist our restaurants and businesses keep their doors open. So today we're having this very timely discussion. The ERC was authorized under the Cares Act and encourages businesses to keep employees on payroll. So to claim your tax credit before it expires on December 31st, 2021, today we'll be discussing who qualifies, difference between 2020 and 2021 rules, overlap of other grants such as the restaurant revitalization fund, the PPP loan, and the IDLE. So these are all things to keep in mind while you're fighting for this employee retention credit. So Ryan, why don't you go ahead and discuss it a little bit, share with our listeners and then we can go through some of the questions our listeners have submitted. Yeah, sure. So I think the best way to go about this today is I'm going to talk about, you know, there's maybe like three phases of the retention credit, you know, it started in 2020 with the Cares Act and the rule were amended twice via the Consolidated Appropriations Act, the CAA, and most lately through the American Rescue Plan, ARPA. So the rules for the CAA and ARPA are very similar. So for purposes of this webinar, I'm going to refer to the retention credit rules of the 2020 rule and the 2021 rule. And I think it would be best to start off with 2020 and then, you know, I'll go into 2021, discuss the differences and, you know, some of the changes that happen. So starting off at 2020, you know, the employee retention credit was, I'm sorry, businesses were able to take the credit on eligible wages and employer covered health care from March 12, 2020 through December 31, 2020. Businesses qualified if either they had a fuller potential government mandated shutdown, or if their gross receipts declined by 50% or greater. And businesses continued to qualify until the quarter after their grocery receipts got up to 80%. So, you know, for example, for quarter three, if your gross receipts went above 80% in July, you could still take the credit for August and September and you would not be eligible selling in quarter four. Originally, businesses that took a PPP loan were not eligible to take the credit. And I'll discuss this a little bit later, but there was a big change as far as that goes for, you know, the 2021 rule. The credit for 2020 was capped at $5,000 per employee per year. So basically from March through December, capped at $5,000 per employee. And the other big rule was that employers with less than 100 employees were able to take credit on the full wages and healthcare pay. If the employer had more than 100 employees, the employer could only take credit on wages and healthcare paid for the employees not doing service for, you know, for those wages and healthcare. So for example, if an employee was furloughed and you continued to pay them, you know, just for the sake of it, then, you know, those wages would be counted if you're greater than 100 employee employer. And one thing to note, too, is the employee count, you know, whether you're less than or greater than 100, take into account aggregation rules, very similar to the ACA aggregation rule. So that's something to keep in mind there. Okay, so that's kind of a high level summary of 2020. Now, going into 2021. So the CAA originally extended the employee retention credits to June 30, 2021, and then our post subsequently extended it again to December 31, 2021, this year. Some of the big changes were that the credit is now, you know, 70% of qualified wages and healthcare per employee per quarter. So basically what that's saying is for per employee, you can potentially take up to $28,000 for the for 2021, as opposed to $5,000 for 2020. So there's a big change there. Now, and going back to the rule about the PPP, so the CAA amended the rule to state that if you took, even if you took a PPP loan, you can now retroactively qualify to take the employee retention credits. So, and this came, you know, after 2020. So, you know, if you took a PPP loan in 2020, you did not take employee retention credit because of that, you could go back and amend your 2020 cash returns, take the employee retention credit on wages that were not covered by PPP forgiveness or otherwise covered by, you know, any other grants. You know, in our case, I think it would be primarily the restaurant revitalization program, you know, possibly the, you know, for Hawaii, there was a, I think it was a bunch of venue grants as well. I'm not sure, you know, how many restaurants would qualify for that, but in a nutshell, you just, they still weren't allowing you to double dip on the credit. Another big change was for 2021. If you would qualify if your gross receipts fell by 20% compared to the same quarter in 2019, and so it was 50, not 20, so it's much more generous in that sense. And the final big change that would potentially apply to most employers is that they change the definition of a large employer from greater than 100 employees to greater than 500 employees. So now, you know, if you have 500 employees or less, you could, you know, take credit on all wages paid and healthcare covered, as opposed to only getting credit for wages paid for employees and not doing service. And that is kind of a high level summary of the, you know, the differences in the 2020-2021 rule, you know, who qualifies? May I just verify, Ryan? So just to verify, if a client is with Altres Simplicity HR, this is something that Altres Simplicity HR is automatically doing for all of their clients. I don't think automatically is the right word, so here's the thing. So Altres as a PEO, or ASO for that matter, we don't handle the income tax side of the business, so Altres doesn't have records of gross receipts, gross revenue. So it's up to our clients to let the PEO know that they qualify. Once they confirm that they qualify, then from there, you know, Altres says the rest, you know, we do the calculation, you know, submit it to the client for approval, and ultimately, you know, file a chapter turn and get the credit back to our clients. Perfect. Thank you, Ryan, for clarifying that. HRA also has members that do specialize in the employee retention credit, and so we'll be having a webinar next week, and thank you again, Ryan. Ryan will be on the webinar the 14th, so it'll be October 14th at 1.30 p.m. If any of our listeners and viewers are not subscribed for Hawaii Restaurant Association's industry updates that come directly to your inbox, please subscribe at HawaiiRestaurant.org, and you'll get valuable information about things like the employee retention credit. So next week, Thursday, 14th, almost 30 in the afternoon, Ryan, and we'll have a panel discussion all around the employee retention credit and answer more questions that these restaurant tours have. So, Ryan, I understand the deadline to apply for this is December 31st, 2021. Okay, so a few things to say about that, sure. So as of now, the American Rescue Plan, you know, like I mentioned, extends the employee retention credit to December 31st of this year. Now, with that said, that doesn't necessarily mean the business has to apply or, you know, file the tax return by then. At this point, you know, the IRS statute states that businesses have up to three years to amend their tax return. So what that means hypothetically at this point, you know, three years from, you know, from December 2021, you know, for whatever reason, a business, you know, discovers that they qualify, you know, they can go back and, you know, amend their return to their 941 tax return and claim the credit. With that said, I wouldn't suggest doing that. You know, I would suggest, you know, if possible, if you know you qualify, get on this, you know, as soon as possible, for two reasons, mainly. So one, at this point, IRS is already, and this is a fact, we know this for sure, the IRS is backlogged with, you know, 941 or amended tax returns. You know, normally we've seen the IRS respond time for those, you know, about, you know, 30 to 60 days, maybe at this point, we know that they're taking at minimum about five to six months to recognize those returns and process them. All that means is, you know, that's an additional delay in, you know, obtaining the credit, the money, you know, for that. And the second reason I wouldn't suggest waiting on this is you never know what new rules will come out. You know, there could be a new rule that comes out, you know, next year saying, you know, you don't have the three years specifically for the retention credit, you know, who knows. And along those lines, just about a month ago or so, it came out that Congress is actually talking about sunsetting employee retention credit as of September of this year. You know, what that means is if that, that, that law goes into effect, the retention credit is effectively over as of, you know, as of today, as of, you know, we're in court for now. You know, with that said, I haven't heard anything final, although it is on the table. So we'll kind of have to take a wait and see approach on that. Thank you so much. Go ahead. Sorry. Oh, no, so I was going to say, you know, one thing to another thing to kind of note with the IRS, and just about, you know, the calculation of the credit itself is, I think it's going to be really important to make sure, you know, especially if you're with a PEO or if you have a tax preparer or an accountant or whatever it may be, is to really work with them to make sure that, you know, you understand what you're, you're, you're filing for and making sure it's accurate. Reason being so specifically for, you know, COVID related tax credits and the employee retention credit is not the only one. Of course, you know, we have the FSTRE six day and whatnot, but the IRS has implemented a special five year, actually the limitations to audit, which is, you know, it's longer than normal. What that kind of implies is that, you know, they may, you know, when, when, when the resources become available, they may take, you know, pretty hard looks at some of this stuff, you know, to make sure the tax credits that were claimed were legit. Very interesting. Thank you for giving that valuable tip. So, Siobhan, do you have any questions for Ryan? Yeah. So, you know, when you're, when you're talking with your clients and they're saying that they qualify, what are the types of documents that they will need to provide to show that they do qualify? So, from, from, and for Altress, and this is for my company, you know, I can't speak for, you know, all the companies out there or whatnot, you know, we just, we have an attestation form that our clients signed that basically just certifies that they qualify, you know, based on, you know, one of the, the conditions, you know, once they sign and, you know, basically take, take the liability for that, we're okay with that. And, you know, we handle the rest. And is there, are there other reasons that they may not qualify and tell them to apply anyway? If, if we know that a client doesn't qualify or if, you know, a client says we don't yet know, we definitely would not, you know, recommend to apply for this anyway. You know, I think when I, and as far as I know, I think most businesses are eligible with the exception of, and I don't know how much this would apply to Hawaii residents, but government, government or state entities would not qualify. Okay. And, you know, so once they receive their money and everything, and I know it sounds like you're saying it's going to take quite a bit of time, you know, in between when they file it and when it will actually receive the money, when they do that, will this need to be claimed on next year's tax return? Not next year. It's actually, we, like, so for example, if, if a business qualifies, let's say for quarter one of 2021, we actually, we go back and amend the tax return for quarter one. It'll be quarter one 2021 tax return amended via 941, form 941 X. Okay. And, and one thing to note there, just about the timing of the money, it's correct that yes, the IRS is taking a little bit longer to recognize these 941 X returns. Now, depending on the situation, depending on what kind of, you know, agreement you have with your CEO, you know, there's a CEO and AISO programs that are slightly different, it doesn't necessarily mean it'll take the full five to six months for the client to obtain the money back. Reason being, the IRS, you know, has a implemented a rule kind of specifically for this saying players are able to basically short their tax deposits in anticipation of taking the credit. So, you know, with that said, you know, from a, from a PEL standpoint, yes, we need to make sure that, you know, the tax return is the numbers are final, the numbers are correct. From that point, the next tax deposit can be shorted. And at that point, we can, you know, credit a credit a client. And that would be probably long before the IRA, you know, recognize, recognize the return. But like I said, you know, that specifically for a PEL relationship, like, you know, there could be, you know, other like AISO relationships or whatnot that I think would be treated a little bit different. Okay. And so, you know, obviously, we're not out of the woods. We've seen all these other variants, especially this one that we've been hit with was the Delta. Is there a possibility that this program could be extended and taken for next year as well? There's always a possibility. You know, with that said, I would say at this point in the year, it doesn't seem like it. I would have thought that if this program were going to be extended, you know, something would have, you know, come out by now as far as, you know, like a another congressional act. And with that said, it's not out of the question. But I would, my opinion would be, you know, it's not looking like it. Well, thank you. That was very helpful. Back to you, Cheryl. Thank you. So, Ryan, you know, as I mentioned earlier, we are all not their tax consultants. So, I'm asking all of our viewers, please consult your own tax consultant. And if you go to the irs.gov website, there is a lot of information on there. And as Ryan mentioned, I'm putting clearly that it's changing. And that's part of why the urgency for this YouTube recording that we are now going to be sending out to our restaurant tours and our webinar next week. Ryan, thank you for participating with that. The other comment that I wanted to make was all about, you know, if a person has, how can I say that if a person has been said, oh, because you've received, you know, RRF, Restaurant Revitalization Fund, PPP, Payroll Protection, or IDOL, you don't qualify. And I feel that people need to go to the irs.gov and research the employee retention credit so that they can see whether or not and just do a quick calculation if they could qualify. Is there anywhere else that you would recommend them going to? You know, I think you're right that the irs.gov website is the best place. Now, keep in mind, you know, if you want, which I wouldn't recommend, but you can read the full act, the full guidance, you know, verbatim, you know, thousands of pages, I don't recommend it. You know, the irs.gov does have an FAQ page that has been updated for each of these three acts. I think those pages, you know, have a good amount of information and could be enough to let you determine whether you qualify or not. You know, one other thing I kind of like to point out along the lines of what you said, regardless of, you know, whether you qualify or not, whether you take the employee retention credit or not, it's going to be very important to maintain accurate records, especially when you have, you know, the PPP, restaurant revitalization and, you know, potential employee retention tax credits. You know, you got to be, you know, very, very clear on, you know, what wages and, you know, healthcare and then, you know, overhead, for example, you know, we're included in your PPP forgiveness. If you've got the restaurant revitalization fund, you got to be very clear on what wages that those funds were used to pay. And, you know, in that case, if you wanted to also take the employee retention credit, you just have to make sure that anything left over or not covered by those two other programs are submitted to the employee retention credit, you know, program. So, yeah, and, you know, to my point about, you know, the five-year, you know, that those are the kinds of things that I think will be looked at in, you know, I think, you know, double dipping on a lot of these credits is something that, you know, the IRS has, you know, tried to make it a point to forgive it. And another that I've been researching as a restaurant owner myself is, if your income went up at all, you're not qualified, which is not true, because when you look at the revenue streams, you have, let's say you have dining rooms that were shut down twice in 2020. And right now, we're still at limited capacity, six-foot distancing, 50% capacity. When you look at the income for the dining in versus you're taking out, those things also can be taken into consideration, Ryan. As I'm researching more about this very important topic, because like all of us, we don't want to leave money on the table. Yeah, absolutely not. Yeah, and I'm not aware of an income limitation on this. But yes, I think, yeah, you'll be okay, you know, regardless of that. Yes, yes. And many of the restaurant tours had said, you know, if I made money on my takeout, but I didn't make money in my dining room, and so they're looking at the different revenue that came into their business. So they're all looking at different ways of, you know, have they looked under every stone? Have they looked, you know, under every rock just to be sure that they can apply for this employee retention credit? That is based on revenue. Yeah, I think in that case, you know, you look at the total revenue compared to the, you know, 2019. Yes, yes. And as I mentioned, you know, we're not giving anyone advice, we're just saying please look into it because all of the things that I'm hearing, Ryan, is there's a lot of misconceptions out there and people, you know, saying, oh no, you wouldn't qualify for this reason or for that reason. And when you actually dig deeper, you could qualify. Yeah, I agree with that. Yeah, I know, you know, personally of, you know, some other businesses that who own a content, you know, mentioned to them that they didn't qualify. And then, you know, when I kind of ask them questions that, you know, I don't agree with them. Which is why I'm asking everyone to go to the IRS.gov website to keep digging to attend webinars, to do your research, because every business has a different model, right? And maybe there's something that you'll discover that your person, your advisor wasn't aware of. So as you said, just keep digging because you never know, right? Like restaurant revitalization fund, it was a pure graph, right? So, yeah, so I guess your point, I think, yeah, the more you can kind of educate yourself about, you know, the program itself, the rules, and yeah, you can, then, you know, a more informed decision you can make about, you know, qualification or not. So, Ryan, I just got the message that we have two more minutes. You have anything you want to say in closing? You know, I don't have anything additional to say on top of what you already kind of said, which is, yeah, you know, it's a good idea to, you know, check out the IRS website, you know, educate yourself, you know, as much as possible about the rules. And, you know, who knows, you know, maybe you will qualify, you know, despite, you know, believing you did it in the past. And, yeah, I definitely don't want to leave money in the table as possible. Excellent. Thank you again so much for spending the day with us. And in closing, if your business qualifies for the employee retention credit, it is a stimulus for your business designed to support those impacted by this pandemic. Time is running out as this credit does expire as of today, and December 31, 2021. And what you restaurant associations employee retention credits webinar will be held on Thursday, October 14, at 1.30 pm. It is free, no charge, because we're all about educating and supporting our whole restaurant and food service industry. Again, Hawaii Restaurant Association is the vice of Hawaii's Restaurant and Food Service Industry, and we'll see you all again in two weeks at Restaurants Hawaii. Thank you so much for joining us.