In general, employees who perform services for the employer during the taxable year are taken into account when determining FTEs for purposes of the tax credit under Code Sec. 45R. However, certain individuals are excluded.
Seasonal workers are disregarded in determining FTEs, unless the seasonal worker works for the employer on more than 120 days during the taxable year.
Partners in a business and certain owners are not included. Specifically, sole proprietors, partners in a partnership, shareholders owning more than 2 percent of an S corporation, and any owners of more than 5 percent of other businesses are not taken into account as employees for purposes of the credit. Family members of these owners and partners also are not included.
For purposes of Code Sec. 45R, a family member is defined as:
- a child (or descendant of a child);
- a sibling or step-sibling;
- a parent (or ancestor of a parent);
- a step-parent;
- a niece or nephew;
- an aunt or uncle; or
- a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
Also, any other member of the household of these owners and partners who qualifies as a dependent under Code Sec. 152(d)(2)(H) is not counted as an employee for purposes of the credit.
Source: IRS Notice 2010-44, I.R.B. 2010-22, May 17, 2010.