Question: I read the recent IRS Notice, but I’m not sure I understand whether or not an employee/owner’s wages qualify for the ERC. Help!
Answer: On August 4, 2021, the IRS released Notice 2021-49 to answer exactly this question – albeit true-to-form in the confusing way only the IRS offers as an explanation.
The notice addresses full-time equivalents, how to stack the ERC with tip credits, the timing of adding back wages for tax purposes, and whether a majority owner’s wages qualify for ERC.
Is it possible the IRS is favoring orphans in this notice? It certainly appears that way. The original text of the CARES Act referenced the rules for Work Opportunity Credits. Specifically, the act indicates that relationships listed in Code Section 51 apply and, while not explicitly saying only payments made to the list of related parties were ineligible, most readers assumed wages to the owners were not disqualified.
Here’s what the guidance now says.