When it comes to the Employee Retention Credit (ERC), wages paid to family members of the owners by more than 50% are not eligible for the credit. This is due to the family attribution rule, which states that the son is also an indirect owner of the business, thus disqualifying the father's salary from the credit. On the other hand, refundable credits paid to a struggling employer and to the landlord and their spouse are eligible for the credit. Payments made to employees for the time they did not provide services and at the rate of pay in effect before the increase would be considered qualified wages.
These amounts do not constitute wages within the meaning of section 3121 (a) of the Code and, therefore, are not qualifying wages for the purposes of the employee retention credit. For administrative staff whose hours were reduced by 40 percent but who are paid 100 percent of the normal wage, Employer T can treat 40 percent of the salary paid for the time these employees don't provide services as qualifying wages for ERC. Similarly, if an employee is not providing services due to the closure of their branch office, but who receive 50 percent of their normal hourly wage, employer T may treat wages paid as qualifying wages for ERC. The owners of an LLC cannot apply for ERC because their salaries come from company profits, not from payroll.
These salaries are paid in accordance with existing leave policies, which represent benefits accrued over a previous period in which employees provided services and are not salaries paid for the time when employees did not provide services. In fact, salaries paid to owners and their spouses will not be eligible for ERC if they have a majority stake in the company. Eligible businesses that qualify can apply for ERC on qualifying salaries, including health insurance costs. Payments can be considered qualifying wages only if they are made to an employee who is still an employee of the eligible employer.
