The Coronavirus Aid, Relief and Economic Security Act (“CARES”) includes several business aid provisions, including a refundable credit for qualifying wages paid to certain employees for a period that may exceed 9 months (the “employee retention credit” or “ERC”). This law increased the employee limit to 500 to determine what salaries are applicable to the credit. The ERC is a refundable credit that companies can request on qualifying salaries, including certain health insurance costs, paid to employees. Eligible businesses that qualify can apply for the credit on qualifying salaries, which is equivalent to 50 percent of the “qualifying salary” of each employee of an eligible employer.
The main distinction between the two categories is that the category of 100 full-time employees or less allows the salaries of all employees to be counted, even if they have not been prevented from providing services, and the category of more than 100 full-time employees allows salaries to be counted only for employees who cannot provide services due to the COVID-19 Order or due to a significant decrease in gross income. Consequently, each of them is eligible to receive the employee retention credit only for wages paid to an employee who does not provide services due to (a total or partial suspension of operations by government order) or (a) a significant decrease in gross income. As such, salaries paid to related individuals may not be taken into account in determining qualifying salaries for the ERC. The owners of an LLC cannot apply for the employee retention credit because the owners' salaries come from the company's profits, not from the payroll.
To help you understand how to calculate if your company is eligible to receive the employee retention credit owner's salary, let's look at some examples below. Companies can no longer pay salaries to apply for the employee retention tax credit, but they have until 2024 and, in some cases, 2025, to analyze their payrolls during the pandemic and apply for the credit retroactively by filing an amended tax return. Employers with 500 or fewer employees can apply for the credit based on the salaries of all employees, regardless of whether they worked or not. Any company with more than 500 full-time employees could only claim the salaries paid to employees when they weren't working.
Remember that the credit can only be deducted for salaries that are not forgiven or that are expected to be forgiven under the PPP. They have experienced lawyers and tax professionals who can help you understand the possibility of claiming the ERC for homeowners' salaries. In the end, credit can be requested for the salaries of the majority owners and their spouses (in a joint stock company), but only if they have no living family members.