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Summertime can mean hiring time for many types of businesses. With legions of working-age kids and college students out of school, and some spouses of business owners looking for part-time or seasonal work, companies may have a much deeper hiring pool to dive into this time of\u00a0year.<\/p>\n
If you\u2019re considering hiring your children or spouse, there could be some tax advantages in play. However, you\u2019ll need to be careful about following the IRS\u00a0rules.<\/p>\n
Employing your kids<\/strong><\/p>\n Children who work for the business of a parent are subject to income tax withholding regardless of age. If the company is a partnership or corporation, children\u2019s wages are also subject to Social Security and Medicare taxes (commonly known as FICA taxes) and Federal Unemployment Tax Act (FUTA) taxes \u2014 unless each partner is a parent of the\u00a0child.<\/p>\n However, substantial savings are possible for a business that\u2019s a sole proprietorship or a partnership in which each partner is a parent of the child-employee. In such\u00a0cases:<\/p>\n As you can see, substantial tax savings may be in the offing depending on your child\u2019s age. Avoiding FICA or FUTA taxes, or both, means more money in your pocket and that of your\u00a0child.<\/p>\n It\u2019s also worth noting that children generally are taxed at lower rates than their parents. Moreover, a child\u2019s income can be offset partially or completely by the child\u2019s standard deduction ($13,850 for single taxpayers in 2023). If your child earns less than the standard deduction, income is tax-free for the child on top of being deductible for the business.<\/p>\n Hiring your spouse<\/strong><\/p>\n When your spouse goes to work for your business, that individual\u2019s wages are subject to income tax withholding and FICA taxes \u2014 but not FUTA taxes. Employers generally must pay 6% of an employee\u2019s first $7,000 in earnings as the FUTA tax, subject to tax credits for state unemployment taxes paid. Thus, you\u2019ll save the money you\u2019d otherwise spend for a nonspouse employee\u2019s FUTA\u00a0taxes.<\/p>\n It\u2019s important that your spouse is treated and compensated as an employee. When spouses run a business together, and they share in profits and losses, the IRS may deem them partners \u2014 even in the absence of a formal partnership agreement.<\/p>\n You also may reap some savings from hiring your spouse if you\u2019re a sole proprietor and have a Health Reimbursement Arrangement (HRA). Your family can receive tax-free reimbursement from the business for medical expenses, and the business can deduct the reimbursements \u2014 reducing your income and self-employment taxes. HRA reimbursements aren\u2019t subject to FICA taxes and the plan itself is a tax-free fringe benefit for your spouse. Do note, however, that this strategy isn\u2019t available if you have other employees.<\/p>\n Handling it properly<\/strong><\/p>\n Whether you decide to hire a child or spouse, or both, you\u2019ll need to step carefully. Assign them actual job duties, pay them a reasonable amount, and keep thorough employment records (including timesheets as well as IRS Forms W-4 and I-9). Essentially, treat them as you would any other employee. Our firm can help you handle the situation properly.<\/p>\n \u00a9 2023<\/em><\/p>\n <\/body> Summertime can mean hiring time for many types of businesses. With legions of working-age kids and college students out of school, and some spouses of business owners looking for part-time or seasonal work, companies may have a much deeper hiring pool to dive into this time of\u00a0year. If you\u2019re considering hiring your children or spouse, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-16631","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16631"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16631\/revisions"}],"predecessor-version":[{"id":16632,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16631\/revisions\/16632"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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