Exactly How It Works

I do not want to get too technical here, but Section 2301(e) of the CARES Act -- which created the employee retention credit -- says that for functions of the employee retention credit, "guidelines similar to the rule of sections 51(i)( 1) and 280C(a) of the Internal Profits Code of 1986 shall use," don't get captured up on the 1986, that's just the last time the Internal Profits Code had a major overhaul, so it's simply described as the Internal Profits Code of 1986. The crucial part here is those other code sections referral.

Let's start with 280C(a) since that's the easy one. That is simply stating that if you get a credit on some salaries you pay in your organization, you can't double dip and take a deduction for those exact same earnings. But now let's talk about section 51(i)( 1 ), which says, "No incomes will be taken into account ...

with regard to a person who bears any of the relationships described in subparagraphs (A) through (G) of area 152(d)( 2) to the taxpayer, or, if the taxpayer is a corporation, to an individual who owns, straight or indirectly, more than 50 percent in worth of the impressive stock of the corporation, or, if the taxpayer is an entity besides a corporation, to any individual who owns, directly or indirectly, more than 50 percent of the capital and revenues interests in the entity." Let's focus on the stipulation that says "if the taxpayer is a corporation" due to the fact that we're assuming an S corp taxpayer here.

That seems clear to me that owner earnings do not qualify. It's just these family members whose wages don't count. The IRS website is not the tax code.

 


 

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