Hempstead NY Employee Retention Program

 
Can you take the employee retention credit on the salaries paid of your S corporation to you, the 100% owner? Now, this is a huge debate in the tax professional neighborhood today. I'm not going to hang my hat on any one position up until we get more information from the IRS on this, however if I needed to lean one way or the other, I would lean in the direction of saying that owner wages in so far as we're speaking about somebody who owns more than 50 percent of business, do not certify.
  
 
Exactly How It Works
I don't wish to get too technical here, but Area 2301(e) of the CARES Act -- which produced 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 Revenue Code of 1986 shall apply," do not get caught up on the 1986, that's simply the last time the Internal Revenue Code had a significant overhaul, so it's just described as the Internal Income Code of 1986. The vital part here is those other code areas recommendation.

Since that's the easy one, let's start with 280C(a). That is simply saying that if you get a credit on some wages you pay in your service, you can't double dip and take a deduction for those same incomes. And now let's discuss section 51(i)( 1 ), which says, "No earnings shall be taken into consideration ...

with respect to a person who bears any of the relationships explained 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, directly or indirectly, more than 50 percent in worth of the exceptional stock of the corporation, or, if the taxpayer is an entity other than a corporation, to any individual who owns, straight or indirectly, more than 50 percent of the capital and profits interests in the entity." So let's concentrate on the stipulation that states "if the taxpayer is a corporation" due to the fact that we're assuming an S corp taxpayer here.Let's focus on the clause that states "if the taxpayer is a corporation" because we're assuming an S corp taxpayer here.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 reduction for those exact same incomes. Let's focus on the provision that says "if the taxpayer is a corporation" since we're assuming an S corp taxpayer here.

So this is saying that you don't take into account wages with respect to a person who owns, directly or indirectly, more than 50 percent in value of the exceptional stock of the corporation. This is stating that you don't take into account incomes with regard to a person who owns, straight or indirectly, more than 50 percent in value of the exceptional stock of the corporation. That seems clear to me that owner wages do not qualify. Now, some tax experts are taking a look at the employee retention credit qualified wages FAQs on the IRS site, and they're looking at FAQ 59, which says, "Are earnings paid by an employer to workers who relate individuals thought about qualified wages?

" and they're stating, "Look at the response here. It's only these relatives whose earnings do not count. And the IRS didn't specifically state owner salaries or spouse salaries don't count here, so bad-a-boo, bad-a-bing, for that reason owner earnings should count." To that, I would state, "Look. The IRS website is not the tax code. That appears clear to me that owner wages do not certify. It's just these family members whose incomes don't count. The IRS website is not the tax code.