For restaurants, one of the most beneficial COVID-19 tax relief measures made available by the U.S. government is the employee retention credit (ERC). For readers not familiar with the ERC, a general overview can be found in our January blog post.
The ERC is a fully refundable payroll tax credit equal to a percentage of wages paid by employers that meet certain ERC eligibility requirements. On August 4, 2021, the IRS confirmed its position that tips that are treated as wages for payroll tax reporting can be treated as wages eligible for the ERC in both 2020 and 2021 (provided all other requirements are met). This is a significant win for the restaurant industry.