Note: I am not a CPA. My comments are a summary of the article published on www.Forbes.com by Alan Gassman and his team, which includes CPAs and attorneys. Please consult with your advisors to confirm how this program applies to your business.
Link to Alan Gassman’s August 5th, 2021 Article: Newly Issued Employee Retention Credit Guidance Punishes Owner Employees if they have Living Family Members
On August 4th, 2021 a full 226 days after the last major update in December 2020, the IRS issued a Notice that states the wages of owners and their spouses of S-corporations who own more than 50% of the business are not eligible for the ERC.
In the bill that Congress passed last December, close family members were specifically excluded from the ERC, because they apparently didn’t want small businesses to pad their payroll with Aunt Sally and Johnny-the-couch-surfing-brother-in-law. Congress seemed to be OK with allowing the wages of the owners and their spouses to be counted as eligible wages. However, the IRS interpreted the rules differently and excluded owners and spouses if they have ANY living relative.
According to Alan Gassman “Only orphans that have no children are able to get the credit, while it is people with large families who need the credit to support their families. This is anti-family, unamerican, and utterly without logic or justification.” Furthermore, Alan anticipates that Congress or the President will fix this problem.
If you are the majority owner of an s-corporation (more than 50%) and you have any living relatives, here are your options:
- If you have already filed a 941X to claim the ERC and included the owner’s and spouse’s wages, go ahead and let those forms process as is without amendment.
- If you intend to file additional 941X forms but have not yet submitted the paperwork:
- Wait a few months until this gets resolved, then file
- If you really need the cash, file now without the owner and spouse. You can always amend a second time.
Remember if you are in California or any region that had a state or local agency mandated restrictions where you could not serve 100% of your pre-pandemic occupancy, then you automatically qualify for the ERC. In California, the wages paid from mid-March 2020 until June 15th, 2021 are eligible wages. You might qualify based on other guidelines through Dec 31, 2021. If you received a PPP Loan, you cannot count the same wages for both programs. Despite this limitation, the ERC has resulted in significant refunds from the IRS.
If you have not take advantage of this program, please contact me HERE.