The IRS has recently released official guidance on the eligibility of salaries paid to business owners and their spouses to receive the Employee Retention Credit (ERC). Unfortunately, the guide states that majority homeowners and their spouses won't qualify for credit in nearly every situation. If the majority owner has any living family members other than their spouse (by blood or marriage), their salary may not be eligible. Shareholders who own less than 2% of the company and who are also employees may also qualify.
When it comes to the ERC, the percentage of ownership matters. Salaries paid to landlords above 50% may not be eligible for credit. The IRS also examines the related individuals (yes, family members) of the majority shareholders and their salaries to determine if the company can take advantage of the credit. If you have family members who own your business, their salaries don't qualify for the employee retention credit.
A partner or other person who is self-employed is not eligible for the employee retention credit on the person's earned income. Many business owners assumed that they couldn't apply for the employee retention credit if they had already applied for the PPP, but that's not true. To help you understand how to calculate if your company is eligible to receive the employee retention credit owner's salary, let's look at some examples below. Filling out the salary documents for the owners of the employee retention credit can be difficult, especially if you're not sure if your salary qualifies for the credit.
Calculating the salaries of the owner of the employee retention credit can be a bit complicated, especially if this is your first time trying to find out. The IRS gave long-awaited clarification as to when salaries paid to majority owners (more than 50%) and their spouses qualify for the ERC. There is a process you can follow to request credits for the salary of the owner of the employee retention credit. For instance, Kevin is related to an owner with more than 50% of the property, his salary doesn't qualify for the employee retention credit.
Similarly, because of indirect but direct ownership, Jessica's salary doesn't qualify for the employee retention credit, even though Jennifer doesn't work for JT Details. The main takeaway here is that majority owners and their spouses are rarely eligible for ERC credits. However, there are some exceptions where they may qualify if they do not have any living family members other than their spouse.
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