Employee Retention Credit and R&D Opportunities for the Hospitality Industry

The hospitality industry has been one of the most adversely impacted in 2020, as many have faced mandated shutdowns and scaling back as a result of economic changes due to COVID-19. However, the industry also has a significant opportunity to claim the Employee Retention Credit (ERC) and explore the Research and Development (R&D) Credit in 2021.

Employee Retention Credit

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided relief measures such as the Paycheck Protection Program (PPP) and the ERC; however, companies could take advantage of either the PPP or the ERC, but not both. On Dec. 27, 2020, the Consolidated Appropriations Act of 2021 (CAA) retroactively ended this stipulation of the CARES Act and provided some enhancements to the ERC, meaning that companies in the hospitality industry can potentially take advantage of both the PPP and the ERC.

You can read more about specific enhancements to the ERC in one of DHG’s most recent articles here.

Research and Development (R&D) Tax Credits

Fortunately, many activities in the hospitality industry can quality for the R&D tax credit. The R&D tax credit is a tax incentive for companies that incur R&D costs in the United States, therefore allowing a company to offset its U.S. tax liability. Below are the most common qualifying activities for the hospitality industry:

  • Software Development – Typically, most hotel groups have their own homegrown software footprint. Software development activities are likely to qualify for the R&D Credit.
  • Process Improvements – Many process improvements in the hospitality industry may lead to developing software and hardware tools (e.g., keyless entry). For example, many hospitality companies made technology improvements in response to COVID-19 process changes. Such activities may quality for the R&D credit.
  • General Qualification Criteria – Activities in engineering, technology, biological sciences or physical sciences performed to achieve new/improved functionality, performance, reliability or quality is likely to qualify as R&D, specifically when the activities are conducted to resolve technical uncertainties through an iterative process of design, development and testing/experimentation.

DHG has experience assisting companies to understand and navigate the ERC and R&D credits. Our multidisciplinary approach for the ERC and R&D credits can help your company estimate the credits and develop a project plan of action. For questions or more information, reach out to us at cre@dhg.com.

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