Are Owner’s Wages Included in ERTC Calculations?

September 6, 2023
Dayes Law Firm

The Employee Retention Tax Credit (ERTC), also described as the Employee Retention Credit (ERC), supplied a financial lifeline for many businesses that experienced operating restrictions or income losses during the COVID-19 pandemic.

Some details of claiming the ERC can be tricky to understand. For instance, do you include owners’ wages in calculating the ERTC? Qualified ERTC tax help will ensure you claim this credit accurately and reduce the chances of an IRS audit.

Who Qualifies for the ERTC?

Did you keep workers on payroll while pandemic-related restrictions affected your business or tax-exempt organization? If so, you may be able to claim the ERC/ERTC.

This tax credit is available to eligible employers whose businesses suffered a significant decline in gross receipts in 2020 and 2021. For ERTC purposes, a “significant decline” is a drop of at least 50% in 2020 and at least 20% in 2021 compared to the same quarter in 2019. 

You could collect up to $5,000 per employee for qualified wages paid in 2020 and up to $21,000 per employee for 2021. The filing deadlines are April 15, 2024, for 2020, and April 15, 2025, for 2021. 

Can You Claim the ERC on Owners’ Wages?

If you own more than 50% of your business, directly or indirectly, your wages usually wouldn’t count toward the ERC, with some exceptions. “Indirect ownership” refers to employees closely related to the business owner, like a spouse, children, or siblings. 

Owner Wages That May Be Eligible for the ERTC

Your wages could qualify for the ERC if you own 50% or less of your business. However, to determine the percentage of ownership, you’ll also need to calculate the share you own indirectly through your spouse or close family members, which includes:

  • Children, stepchildren, and grandchildren
  • Siblings and stepsiblings
  • Parents and stepparents
  • Nephews and nieces
  • Uncles and aunts
  • Son-, daughter-, parent-, sister-, and brother-in-law

Not sure whether an employee’s wages qualify? Seek professional ERTC tax help and ensure your compliance. 

An Exception to the Majority Owner Rule 

If the majority owner and/or their spouse don’t have any lineal descendants or close relatives, their wages may qualify for the ERC. 

For example, Jane owns 100% of a business. Both Jane and her husband Tom are the company’s employees. Neither Jane nor Tom have any children or other relatives the IRS would count as attributed owners. Therefore, Jane may claim the ERC on her own and Tom’s wages. 

Now, let’s say Jane is a sole owner and has a son, Kevin, who isn’t an employee or shareholder of the family business. In this case, IRS attribution rules count Jane and Kevin as 100% owners, even though Kevin doesn’t work for his mother’s company. Thus, Jane’s wages wouldn’t qualify for the ERC.

Why You May Benefit from Professional ERTC Tax Help

It may be difficult to figure out which wages count toward the ERTC. Filing your amended Form 941 incorrectly may cause the IRS to decline your claim or even trigger an IRS audit with all its ensuing complications. 

Working with an experienced tax attorney will ensure you list any qualifying wages accurately and comply with other IRS requirements. You’ll save time, prevent costly mistakes, and potentially avoid a lot of stress by consulting a tax professional before you file. 

Claim Your Available ERTC With Dayes Law Firm

Not sure whether your business qualifies for the ERC and which wages are eligible for this credit? Contact us at Dayes Law Firm for reliable, efficient ERTC tax help. Our skilled legal team will help you calculate and claim all your available tax benefits. 

Call 866-567-4510 or contact us online for a free consultation today.