The Employee Retention Credit (ERC) is a valuable tax credit offered by the IRS to assist small businesses in retaining their employees during challenging economic conditions. As businesses navigate the eligibility requirements and application process for the ERC, one question that often arises is whether the credit can be claimed for owner-employees. Let’s take a closer look at the rules surrounding this issue.
Who Qualifies as an Owner-Employee for ERC Purposes?
An owner-employee is generally someone who owns at least 5% of the business, as well as their spouse, children, grandchildren, and parents. For the purposes of the ERC, these individuals are treated as both owners and employees.
Perhaps you’d like to peruse the ERC FAQ
Can a Business Claim the ERC for Owner-Employees?
The short answer is yes, a business can claim the ERC for owner-employees who meet the eligibility criteria. However, there are some important considerations to keep in mind:
- The employee must meet the eligibility criteria: To claim the ERC for an owner-employee, the employee must meet the same eligibility criteria as any other employee. This includes meeting the criteria for wages paid and hours worked, as well as any other eligibility requirements.
- The business owner cannot claim the credit for themselves: If the business owner is also the owner-employee, they cannot claim the ERC for themselves. However, they may be able to claim the credit for other employees who are not owner-employees.
- The credit may be limited for more-than-50% owners: If the business owner owns more than 50% of the business, there may be limitations on claiming the credit for owner-employees. Specifically, the credit may be limited to 70% of qualified wages paid to owner-employees.
- Documentation is important: As with any other employee, it’s important to maintain documentation to support the ERC claim for owner-employees. This may include payroll records, employment contracts, and other relevant documents.
Must look at the ERTC FAQ to better comprehend it!
Conclusion
Businesses can claim the ERC for owner-employees who meet the eligibility criteria, subject to certain limitations. As with any other employee, it’s important to maintain documentation to support the ERC claim for owner-employees. If you have any questions or concerns about claiming the ERC for owner-employees, it’s a good idea to consult with a tax professional.