Employee Retention Credit - Excluding Family Members' Wages from Qualified Wages

Amidst guidance surrounding the CARES Act and other COVID-19 legislation, it’s important to note additional limitations on the qualified wages used for calculating the Employee Retention Credit. One of these is the exclusion of wages paid to related individuals, as defined in Section 51(i)(1) of the Internal Revenue Code.

Wages of individuals excluded from qualified wages would be those with the following relationship to the employer, if the employer is:

1) An individual:

  • Child or descendent of a child
  • Brother, sister, stepbrother or stepsister
  • Father, mother or ancestor of either
  • Stepfather or stepmother
  • Niece or nephew
  • Aunt or uncle
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law

2) A corporation:

  • Any of the above (listed under individual) who are related to an individual owning (directly or indirectly) more than 50% of outstanding stock

3) An entity other than a corporation:

  • Any of the above (listed under individual) who are related to an individual owning (directly or indirectly) more than 50% of the capital and profits interests

4) An estate or trust:

  • Grantor, beneficiary or fiduciary
  • Any of the above (listed under individual) who are related to an individual who is a grantor, beneficiary or fiduciary

An additional resource to these nuances can be found at IRS FAQ website.

Please contact your Schneider Downs tax advisor if you have any questions or would like to discuss the provisions of the CARES Act and or the Families First Coronavirus Response Act, and visit our coronavirus resource page for related content.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2020 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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