I received a call yesterday from a very nice Human Resources Manager asking about the HIRE Act’s Payroll Tax Exemption’s “family member” restriction. Employers can not claim the payroll tax exemption for wages paid to members of the employer’s family. Sounds simple, but exactly whose family members are restricted? Let’s explore this issue a little.
On the IRS website, in response to the question “Who are eligible employees?” the IRS responds:
Qualified employees are individuals who begin employment with a qualified employer after February 3, 2010, and before January 1, 2011, who have been unemployed or employed for less than 40 hours during the 60-day period ending on the date such employment begins, and who are not family members of or related in certain other ways to the employer.
The instructions to IRS Form W-11 offer some additional details. When the employer is a sole proprietor, family relationships are pretty straight forward.
An employee is related to you if he or she is your child or a descendent of your child, your sibling or stepsibling, your parent or an ancestor of your parent, your stepparent, your niece or nephew, your aunt or uncle, or your in-law.
However, if the employer is a corporation or other common type of tax entity, the restriction applies to any employee who
is related to anyone who owns more than 50% of your outstanding stock or capital and profits interest or is your dependent or a dependent of anyone who owns more than 50% of your outstanding stock or capital and profits interest
Form W-11’s instructions send you directly to the Internal Revenue Code for more information if the employer is an estate or a trust. If this applies to you, please see section 51(i)(1) and section 152(d)(2) of the Internal Revenue Code for more information.