Restaurant Return To Work Tax Credit Program Frequently Asked Questions

A. OVERVIEW

1. What is the Restaurant Return-to-Work Tax Credit Program?
The Restaurant Return-to-Work Tax Credit Program (the Program) offers tax credits to qualifying restaurant small businesses that increase their employment during 2021.

2. What is the goal of the Program?
The Program was created to provide financial assistance to economically harmed restaurants in order to offer relief, expedite their rehiring efforts, and reduce the duration and severity of economic difficulties facing the industry.

3. How much funding is available under the Program?
In total, there is a maximum of $35 million available for tax credits under the Program.

4. Who is administering the Program?
The Program is administered by Empire State Development (ESD), the state’s chief economic development agency, which then offers tax credit certificates to eligible business entities whose applications are approved. Businesses that receive tax credits must then apply to the State Department of Taxation and Finance (DTF) to claim their credit.

B. BUSINESS ELIGIBILITY REQUIREMENTS

5. What is a “business entity” under the program?
A business entity is a sole proprietor, partnership, limited liability company, or a corporation (C- Corp or S-Corp) with its own federal employer identification number (FEIN), or in the case of a sole proprietor, a social security number.

A related business entity, with common ownership, but operating under a different FEIN, is generally considered a separate business entity unless part of a franchise or chain.

6. What does it mean that, to be eligible, a business entity must be an eligible “small business?”
To be eligible, a business entity must be a small business, which in the context of this program, means an independently owned and operated business with less than 100 full time equivalents (FTEs).

7. What does it mean that, to be eligible, a small business must be “independently owned and operated?”
A business concern must independently manage and control the day- to-day operations of its own business through its ownership and management, without undue influence by an outside entity or person that may have an ownership and/or financial interest in the management responsibilities of the small business.

Independently owned does not include a publicly traded entity, or a small business that is five percent or more owned, directly or indirectly, by a publicly traded entity, a subsidiary or a business operated as a franchise.

A franchise is an authority that is given by an organization to someone, allowing them to sell its goods or services or to take part in an activity which the organization controls. A restaurant franchise is a contractual agreement, and most importantly, a relationship, between a restaurant's corporate owner (franchisor) and the restaurant's current operator (franchisee).

8. What types of “restaurants” may be eligible for the program?
To be eligible restaurants, small businesses must be qualifying food services businesses, which includes full-service and limited-service food and beverage establishments in New York State that operate predominantly as and make significant accommodations for on-premises, in- person dining, such as:

  • Bars, taverns, nightclubs, or drinking places primarily engaged in preparing and serving alcoholic beverages for immediate consumption.
  • Full-service restaurants primarily engaged in providing food services to patrons who order and are served while seated (i.e. waiter/waitress service) and paying after eating.
  • Limited-service restaurants engaged in providing food services (except snack and nonalcoholic beverage bars) where patrons generally order or select items and pay before eating. Some establishments in this industry may provide these food services in combination with selling alcoholic beverages.
  • Breweries/wineries/cideries/distilleries/meaderies with a tasting room and for which on-site sales constitute at least 33% of gross receipts.

Businesses that operate predominantly as take-out or quick service establishments and do not offer on-premises or in-person dining are ineligible.

Ineligible businesses generally include caterers, mobile food services, supermarkets and groceries, and other specialty shops that fail to meet the above business definitions and on- premises, in-person dining requirements.

9. Where must a restaurant be located to be eligible for the program?
Eligible restaurants must be located anywhere in the City of New York, which was subject to a suspension of indoor dining for over six months, or in another area of New York State that was subject to additional in-person dining restrictions due to its area designation as an Orange and/or Red Zone for at least 30 consecutive days.

Orange and Red Zones are designations were made by the NYS Department of Health where clusters of COVID-19 cases existed, with Program-qualifying Orange or Red Zones being established in portions of Chemung, Erie, Monroe, Onondaga, Orange, Rockland and Westchester Counties. In addition, New York City restaurants are eligible.

10. What if my restaurant location was right next to a qualifying zone?
The Orange and Red Zones are geographically defined areas for which additional restrictions applied. Restaurants outside of qualifying Orange and Red Zones that are not in New York City were not subject to the additional restrictions and do not qualify.

11. What other eligibility requirements apply to the program?
To be eligible, businesses must also meet the following requirements:

  • Businesses must demonstrate either a 40% decline in gross receipts or a 40% decline in employment. The 40% decline may be shown by a comparison of gross receipts or employment in either the 2nd or 3rd quarter of 2019 and the same quarter of 2020.
  • Businesses and qualifying restaurant locations must achieve a net employee increase (i.e., add at least one average employee during the employment growth period).
  • Businesses and qualifying restaurant locations must be in substantial compliance with State health laws and directives.
  • Businesses must not owe past due state taxes or local property taxes unless the business is making payments and complying with an approved binding agreement with the taxing authority.
  • All establishments licensed by the State Liquor Authority MUST hold an active license.

12. If my business received Federal assistance such as a U.S. Small Business Administration Payroll Protection Program (PPP) loan, Economic Injury Disaster Loan (EIDL), Restaurant Revitalization Fund (RRF), am I eligible to participate in this program?
Yes. Federal assistance does not disqualify a business from this program.

13. If my business received State assistance such as a New York Forward loan or a COVID- 19 Pandemic Small Business Recovery grant, am I eligible to participate in this program?
Yes. Prior State assistance does not disqualify a business from receiving tax credits for increasing its employment under this program.

C. BENEFIT ELIGIBILITY AND CALCULATION
 

14. What is a “full-time equivalent position?”
A full-time equivalent (FTE) position is one or more employees working at least 35 hours a week. For purposes of the Restaurant Return-To-Work Tax Credit Program, ESD will calculate FTEs based upon the number of full-time positions, part-time positions, the total hours, and the total wages a business reports in its application. All employment information in the application (full-time plus part-time employees and wages) must match that reported by a business in its Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return (NYS- 45).

15. What is the difference between full-time and part-time employees?
A full-time employee is an individual working 35 or more hours a week. A part-time employee is an individual working less than 35 hours a week.

16. Are LLC Members or S-Corporation shareholders counted as employees?

For purposes of this Program, the employee status of partners, LLC Members and S-Corporation shareholders follow the federal guidelines of the Internal Revenue Service (IRS).  Partners in partnerships are not considered to be employees of the partnership.  If the LLC is taxed as a partnership, the LLC Members are not employees.  However, if the partnership chooses to be taxed as a corporation, its members may become salaried employees.  And, an S-Corp shareholder who performs more than minor services for the corporation may be considered an employee for tax purposes.

You should consult with a tax advisor to determine the employee status of your LLC Members or S-Corporation shareholders that apply to your specific circumstances.

17. Are employees leased through a PEO counted as employees?

Yes, provided the professional employee organization is registered with the New York State Department of Labor. 
You can check the to see that the PEO you are using is registered at https://dol.ny.gov/professional-employer-organizations-peo

18. What is meant by “gross receipts?”
The annual gross receipts figure you report in your application should come from your tax documents. If you have documentation to show quarterly gross receipts, you should make note of what document you are using on your application in the space provided when reporting the quarterly number.

19. What is average-full-time employment?
Average full-time employment means the average number of full-time equivalent positions employed by a business entity in an eligible restaurant during a given period. The relevant periods are:

  • January 1, 2021 through March 31, 2021 – this period is the average starting full-time employment.
  • April 1, 2021 through August 31, 2021 – this period is the average ending full-time employment for businesses that choose the Advance Payment Option.
  • April 1, 2021 through December 31, 2021 – this period is the average ending full-time employment for businesses that choose the end of the year for calculating their employment increase and did not choose the Advance Payment Option.

Note: If eligible applications exceed $35 million under the Advance Payment Option, then the year-end option will not be available.

20. What is a “net employee increase”?
A net employee increase means at least one full-time equivalent employee is added between the average starting full-time employment and the average ending full-time employment.

21. How is a “net employee increase” calculated?
Simply stated, if the average starting full-time employment for your business is 15 and the average ending full-time employment is 20, then you had a net employee increase of five (5). However, there are factors that will make calculation of the net employee increase more complicated.

Several examples are provided below. In all these examples, it is assumed the business entity meets all other eligibility criteria to participate in the Program:

  • I own one restaurant in New York City.
    The calculation is straightforward, your average starting full-time employment will be subtracted from your average ending full-time employment.

  • I own three restaurants, all under the same business entity, and two of them are in New York City. The third is in Westchester County and not in a qualifying Orange or Red Zone.
    First, the average starting full-time employment for all three locations combined will be subtracted from your average ending full-time employment for those locations to determine if there has been a net employee increase for the business entity. Second, only the employees at the two New York City locations will be counted towards the net employee increase. So, if your starting employment was 30 and your ending employment was 35, the net employee increase is five (5). However, if only three (3) of the five (5) are employees hired at the New York City location, then the net employee increase is three (3).

  • I own three restaurants, one in Rochester, another in Syracuse and the third in Buffalo. Each restaurant is owned by me but under different entities. The Syracuse and Rochester restaurants are in a qualifying former Orange Zone, the Buffalo restaurant is not in a qualifying former Orange or Red Zone.
    First, since the restaurants are owned by separate business entities, each will be considered separately. Second, only the Syracuse and Rochester restaurants qualify based on their location. Since there is only one location for each business entity, the average starting full-time employment will be subtracted from the average ending full- time employment separately for each of the two restaurants to determine the net employee increase for each.

22. What happens if my business entity has a net FTE increase at an eligible restaurant but shows no FTE increase when adding all of my restaurants together?
You are not eligible for the credit. Your business entity must show a net FTE increase.

23. What if my business meets the 40% threshold for jobs but not the threshold for receipts, or vice versa?
You may still be eligible - only one of the tests must be met to qualify.

24. How else will my eligibility be affected if I own multiple restaurants?
If you own multiple restaurants AND they are all operated under the same business entity, then all your restaurants will be considered in terms of whether you meet the eligibility criteria. If you own multiple restaurants AND they are operated under different, but related business entities, then each business entity will be considered separately in terms of qualifying for participation in the Program. In either case, a business entity must have at least one restaurant location in New York City or in a qualifying former Orange or Red Zone to qualify for the Program.

Some of the examples below should help to understand the qualifications:

  • I own three restaurants, all under the same business entity, one in New York City and the other two outside of New York City. The combined employment at all three locations is 150.
    Since the business entity has more than 100 employees, it does not qualify as a small business.

  • I own three restaurants, all under the same business entity, one in New York City and the others in Rockland County but not in an Orange or Red Zone. I meet the definition of independently owned and operated and the combined employment at all three locations is 90.
    Since the business entity has fewer than 100 employees it meets the qualifications as a small business. However, only employment increases at the New York City location will be considered for tax credits.

D. APPLICATION PROCESS
 

25. How do I apply for the Program?
An application portal is available on the Program webpage.

26. What documentation will I need to apply?
The documents you will need to provide are listed in a separate form linked on the Program webpage. All documents must be uploaded via link provided by ESD in an email. Copies of the documents must be uploaded at time of application. An application will not be considered complete and approved without all the necessary supporting documentation uploaded. All file uploads are secure and protected.

27. Is any help available to support me in preparing my application?
Yes - click here for a view the list of Technical Assistance providers to help you complete your application.

E. TAX CREDIT PROCESS
 

28. If I meet all Program eligibility criteria, am I guaranteed to receive tax credits under this program?
No. The State budget allocated a maximum of $35 million in available tax credits. If and when this allocation is exhausted, business entities will no longer be able to receive tax credit certificates. Business entities are encouraged to apply to the program as soon as possible.

29. How do I use the tax credit certificate I received from Empire State Development to claim my tax credit?
You will use the information provided on your tax credit certificate to complete the application on the Department of Taxation and Finance (DTF) website.  The certificate will include the ownership information provided by the business in the application submitted to Empire State Development. It is very important that the ownership table in the application be completed correctly to include all owners of the applicant business, their tax identification or social security numbers, and the percentage ownership for each owner. The percentages must add to 100%. If the information is not accurate, it will likely cause a delay in receiving the credit. Approved businesses will be provided a link to the DTF website to claim the credit. 

30. What is an advance payment?
An advance payment is a method for a business entity to receive a program tax credit for new hires prior to filing its 2021 tax return. A business entity applying to the Program can choose an advance payment, but such request must be submitted to the NYS Department of Tax and Finance before November 15, 2021.

If you choose this method, your ending average full-time employment will be calculated as the difference between your average full-time employment during January 1, 2021 to March 31, 2021 and your average full-time employment between April 1, 2021 through August 31, 2021.

To receive an advance payment, you must provide your April to August monthly employment numbers from your Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return (NYS-45) to ESD by September 24, 2021.

Since you would normally submit your NYS-45 for July, August and September in October, a draft NYS-45 for the 3rd quarter of 2021 will be accepted.

31. If I apply for the advanced payment, can I also receive credits for employees I hire after August 31, 2021?
No, if you choose the advance payment option you cannot also apply for tax credits for any hires made after August 31, 2021.

32. If I choose not to apply for the advance payment under the Fast Track Option, will tax credits be reserved for businesses that do not apply for advanced payments?
No. Credits will be allocated to those qualifying for advanced payments under the Fast Track Option first. Once the $35 million available for the Program is allocated, no additional applications can be considered, and there is no guarantee that credits will remain following the Fast Track Option application period.