How to save tax dollars by hiring family members

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How to save tax dollars by hiring family members

How to save tax dollars by hiring family members

Child employed by parents

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the “Covered services of a child” section below.  Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payments for the services of a child are subject to income tax withholding, regardless of age.

One spouse employed by another

The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. Refer also to Husband and Wife Business.
Exception to the above:
The wages for the services of a spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:

  • A corporation, even if it is controlled by the individual’s spouse, or
  • A partnership, even if the individual’s spouse is a partner.

There may be other tax savings on the State level.  Check with your local Department of Revenue or Department of taxation, and the rules for the local workers’ compensation and unemployment insurance guidelines for family members.

2019-08-03T13:10:28+00:00February 13th, 2019|Categories: Business Startup, Finance, Ready to go into Business, Tax Solutions|

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