Understanding Taxes When a Family Member Signs the Paycheck
Tax Tip 2022-151, October 3, 2022
Many people work for a family member, whether it's a child helping out at their parent's shop or spouses running a business together. When someone is employed by a family member, the tax implications depend on the relationship and the type of business. It's important for taxpayers and employers to understand their tax situation.
Married people in business together
Generally a qualified joint venture whose only members are a married couple filing a joint return isn't treated as a partnership for federal tax purposes.
Someone who works for their spouse is considered an employee if the first spouse makes the business's management decisions and the second spouse is under the direction of the first spouse.
The wages for someone who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.
Children employed by their parents
If the business is a parent's sole proprietorship or a partnership in which both partners are parents of the child:
Wages paid to a child of any age are subject to income tax withholding.
Wages paid to a child age 18+ are subject to social security and Medicare taxes.