Can you the Owner get the Credit for your personal payroll or profit?
This is the golden question, isn’t it? Regrettably, the answer is somewhat in a gray area. All we know regarding this particular detail comes from the IRS.gov Newsroom and the FAQ section regarding the ERTC.
For sole proprietors, the answer is no. The IRS in FAQ #23 makes it clear that they are not going to allow the ERTC for sole proprietors under their interpretation of the CARES Act. They also clearly state that the FAQ section has not been updated under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted December 27, 2020. Most professionals agree that the new legislation doesn’t change the rule for sole proprietors.
However, FAQ #23 does not address corporations, or more specifically, S-Corporation owners. In fact, FAQ #59 states that S-Corporations are allowed to take the ERTC for their employees (assuming the business owner complies with all the other rules, including not claiming payroll for the ERTC that was covered with PPP money).
FAQ #59 further states that payroll for “related individuals” of the S-Corporation owners cannot be used for calculating the ERTC. However, it conspicuously does not state that the "owner" is considered a related individual.
So, when it comes to the action owners of S-Corporations holding 50% or more of the stock, the safe bet is to consider them a "related individual," and thus the owner cannot receive the ERTC on their own payroll. This cautious interpretation would fall in line with other rules in the code regarding self-dealing or prohibited transactions (i.e. Section 1372 of the Internal Revenue Code requires that 2% or greater shareholders be treated as partners in a partnership for this purpose, making them self-employed individuals instead of employees).
Thus, for purposes of this article and the advice we are giving our clients, until we see definitive guidance and a stance from the IRC on the issue of payroll for owners of an S-Corporation owning 50% or more of the entity, we would not claim the ERTC on their wages.
https://www.entrepreneur.com/article/364519
