Updated FAQ Offers Practical Solutions
The Internal Revenue Service (IRS) updated its FAQ related to the Employee Retention Credit (ERC), delivering practical solutions tailored to the unique financial challenges faced by restaurant businesses. These updates streamline tax compliance, align reporting with cash flow realities, and reduce administrative burdens for restaurant operators.
GBQ is committed to helping clients navigate these changes with confidence and ensuring your restaurant thrives while staying fully compliant. Keep reading to learn more about the FAQ changes and how your business may be impacted.
Flexible Wage Deduction Rules For ERC Refunds
Previously, restaurant owners claiming the ERC were required to reduce wage expenses on their income tax return for the year the wages were paid or incurred. However, many delayed this adjustment, as funding the tax payment before receiving the ERC refund strained already tight budgets. The IRS’s new guidance addresses this challenge with a restaurant-friendly approach.
If your restaurant received an ERC refund but did not reduce wage expenses in the original tax year, you can now report the refund as a reduction of wage expense in the year it was received. This eliminates the need to amend prior tax returns, even if the statute of limitations has expired. For instance, if your restaurant claimed an ERC refund for 2020 wages but received the funds in 2024, you could include the wage expense reduction on your 2024 tax return without amending your 2020 filings. This practical solution aligns tax obligations with cash flow, easing financial pressure.
Be aware that changes in ownership, state tax requirements, or tax laws between the original wage year and the refund year may require careful planning. GBQ specializes in restaurant accounting and can help you address these complexities to ensure accurate reporting and strategic tax management.
Streamlined Solutions For Disallowed ERC Claims
If your restaurant’s ERC claim is denied after you reduced wage expenses in the original tax year, the IRS offers a straightforward remedy. You can claim a deduction in the tax year when all efforts to secure the refund have been exhausted, without the hassle of filing amended returns or protective refund claims. This streamlined process minimizes administrative overhead, allowing you to focus on running your restaurant while maintaining compliance.
Why This Matters For Restaurants
Restaurants operate in a high-pressure environment with slim margins, complex labor costs, and fluctuating cash flows. The IRS’s updated ERC guidance is a game-changer, offering flexibility that aligns tax reporting with your financial realities. By simplifying compliance and reducing the need for retroactive adjustments, these changes empower restaurant owners to prioritize growth and operational efficiency.
Navigating ERC compliance doesn’t have to be daunting. Our restaurant industry experts can provide tailored guidance to ensure your business leverages these IRS updates effectively. From optimizing refund reporting to managing disallowed claims, we deliver the clarity and support you need to succeed.
Contact Kaz Unalan, Sara Goldhardt, Kevin Dunn, or your GBQ advisor today to discuss how to navigate these ERC updates. Let us help you turn tax compliance into a foundation for long-term financial success.
By Kaz Unalan, CPA, CEPA, director, tax & advisory services
Seeking additional tips and insight to help position your restaurant for long-term financial success? Check out these resources:
Mastering Business Combinations: Key Tips For Franchisor Success
10 Financial Due Diligence Considerations For Restaurants
