PAYROLL TAX TREATMENT FOR FAMILY MEMBERS

[Lee B]

Copied From IRS eNews For Small Business:

"Tax treatment for family members working in the family business

As part of October’s National Work and Family month, the IRS is providing tax information regarding work/home life balance and the unique tax circumstances that can arise when the two overlap. For example, when including family members in business operations, certain tax treatments and employment tax rules apply.

• Both spouses carrying on the trade or business: If spouses carry on a business together and share in the profits and losses, they may be partners even if they don’t have a formal partnership agreement.

• Qualified joint venture. Spouses may elect treatment as a qualified joint venture instead of a partnership.

• Employment taxes. If the business has employees, either of the spouses as sole proprietors may report and pay the employment taxes.

• One spouse employed by another. The wages for the services of an individual who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes but not to the Federal Unemployment Tax Act.

• Child employed by parents. Payments for the services of a child under age 18 aren’t subject to Social Security and Medicare taxes, if the business is a sole proprietorship or a partnership in which each partner is a parent of the child.

• Parent employed by child. The wages for the services of a parent employed by their child are subject to income tax withholding and Social Security and Medicare taxes.

More information:
• Election for Married Couples Unincorporated Businesses
• Publication 334, Tax Guide for Small Business
• Publication 15, Circular E, Employer Tax Guide
• Publication 51, Circular A, Agricultural Employer’s Tax Guide
• Publication 541, Partnerships"