Non-Qualifying Owner's Relatives
A majority owner is anyone who owns more than 50% of the company. The wages of the relatives of a majority owner do not qualify for the ERC credit.
The following is from the IRS document entitled, "Notice 2021-49 - Guidance on the Employee Retention Credit under Section 3134 of the Code and on Miscellaneous Issues Related to the Employee Retention Credit"
"the wages paid to employees with the following relationships to a majority owner of a corporation or of a partnership or other entity are not qualified wages:
(A) A child or a descendant of a child.
(B) A brother, sister, stepbrother, or stepsister.
(C) The father or mother, or an ancestor of either.
(D) A stepfather or stepmother
(E) A niece or nephew
(F) An aunt or uncle
(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
(H) An individual (other than a spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household."
Section 267(c) of the Code provides rules regarding the constructive ownership* of stock for purposes of determining whether an individual is considered a majority owner of a corporation.9 Section 267(c) sets forth the following rules to determine whether an individual has constructive ownership of stock of a corporation:
(1) stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust is considered as being owned proportionately by or for its shareholders, partners, or beneficiaries;
(2) an individual is considered to own the stock owned, directly or indirectly, by or for the individual’s family;
(3) an individual owning (otherwise than by the application of (2)) any stock in a corporation is considered to own the stock owned, directly or indirectly, by or for his partner;
(4) the family of an individual includes only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; and
(5) stock constructively owned by a person by reason of the application of (1) will be treated, for the purpose of applying (1), (2), or (3), as actually owned by that person. Stock constructively owned by an individual by reason of the application of (2) or (3) will not be treated as owned by the individual to again apply either rule to reattribute and make another individual the constructive owner of the stock.
*Constructive Ownership - "Another very common type of ownership is referred to as indirect ownership or “constructive ownership.” Constructive ownership of stock refers to ownership that is attributed to a person (usually) due to their relationship with another person" (IRC318 Constructive Ownership of Stock)