It goes without saying that thousands of breweries have been adversely affected by COVID-19 and the subsequent economic downturn. While several Federal and State measures have been enacted to minimize the financial burden, the recent expansion of the Employee Retention Credit will provide significant aid to breweries in the form of a Federal payroll tax credit.
The Consolidated Appropriations Act of 2021 brought a retroactive change to the Employee Retention Credit, which was introduced with the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020. Under previous laws, employers receiving a PPP loan were not eligible for the credit. However, under the new law, even those receiving PPP loans are eligible, but they must exclude any covered period wages that were forgiven by the SBA.
The Employee Retention Credit is a 50 precent payroll tax credit for small employers of 100 or fewer full-time equivalent (FTE) employees for wages paid between March 12 and December 21, 2020. Employers are only eligible during this timeframe if their business was shut down by the government or they experienced a 50 percent decline in receipts in a 2020 quarter compared to the same quarter in 2019. Once they are eligible, they continue being eligible for each quarter thereafter until their receipts are greater than 80 percent. Employers with greater than 100 FTE can still be partially eligible.
Fully or partially shut down by government order means:
- The orders have come from state or local governments having jurisdiction over the entity
- The order must limit commerce, travel, or group meetings due to Covid-19
- The order must affect an employer’s trade or business
A special note; if an employer has multiple locations and one geographic area meets this test, then the whole company qualifies.
2021 Employee Retention Credit
The credit not only got a retroactive enhancement, but also has been extended through June 30, 2021 with some improved benefits in 2021. The 2021 credit is a 70 percent payroll tax credit and employers with 500 or fewer FTE are eligible if they experience a 20 percent decline in gross receipts from the comparable quarter to 2019. If an employer receives the maximum credit of $5,000 in 2020, they are still eligible to get the full $7,000 credit in the first two quarters of 2021 on the same employees.
The Employee Retention Credit is a great way for breweries that paid their employees during the pandemic to increase their cash flow. While uncertain times still lie ahead, the retroactive expansion of this credit, along with the recent permanency of the Craft Beverage Modernization and Tax Reform Act, are making what seemed to be a bleak 2021 for the industry a touch brighter.
Tim O’Neill, CPA, is a tax manager and leader of food and beverage industry services at Mueller Prost CPAs + Business Advisors in St. Louis.