We must re-emphasize how valuable this credit it. You can refer to our prior memos on the general details. Keep in mind that the details become clearer as further guidance is issued by the SBA and IRS. We cannot possibly detail every scenario or variable in our these updates.
Sole proprietors with no employees are not eligible for this credit. To be eligible, you must have paid/pay bona fide wages in 2020 and/or Q1 and Q2 of 2021.
The IRS has clarified a few things about qualifying employers and wages. The full list can be found here:
The most notable provision is FAQ# 59. It appears that wages paid to a spouse are qualified wages. Wages paid to the following are not qualified:
- A child or a descendant of a child;
- A brother, sister, stepbrother, or stepsister;
- The father or mother, or an ancestor of either;
- A stepfather or stepmother;
- A niece or nephew;
- An aunt or uncle;
- A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
In addition, if the Eligible Employer is a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent in value of the outstanding stock of the corporation.
If the Eligible Employer is an entity other than a corporation, then a related individual is any person that bears a relationship described above with an individual owning, directly or indirectly, more than 50 percent of the capital and profits interests in the entity.
Looking back at Example 2 of our last post from 4-29-21, the example includes adding the daughter to the payroll. Based on this new guidance, the daughter’s wages would not qualify for the ERC.
The full or partial suspension of business provision applies to 2020 and 2021.
We have a flowchart for 2021 ERTC that can be provided upon request.