Tax Tip 2022-151:Understanding taxes when a family member signs the paycheck

IRS Tax Tips October 3, 2022
Useful Links: IRS.gov Help For Hurricane Victims News Essentials What's Hot News Releases IRS - The Basics IRS Guidance Media Contacts Facts & Figures Around The Nation e-News Subscriptions The Newsroom Topics Multimedia Center Noticias en Español Radio PSAs Tax Scams/Consumer Alerts The Tax Gap Fact Sheets IRS Tax Tips Armed Forces Latest News IRS Resources Contact Your Local IRS Office Filing Your Taxes Forms & Instructions Frequently Asked Questions Taxpayer Advocate Service Where to File IRS Social Media	Issue Number:  Tax Tip 2022-151 Understanding taxes when a family member signs the paycheck 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.   Wages paid to a child age 21+ are subject to Federal Unemployment Tax Act  If the business is a corporation, estate, or a partnership in which one or no partners are parents of the child: Payments for services of a child are subject to income tax withholding, social security taxes, Medicare taxes and FUTA taxes regardless of age. Parents employed by their child If the business is a child's sole proprietorship: Payments for services of a parent are subject to income tax withholding, social security taxes and Medicare taxes. Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided. If the business is a corporation, a partnership, or an estate: The payments for the services of a parent are subject to income tax withholding, social security taxes, Medicare taxes and FUTA taxes. If the parent is performing services for the child, but not for the child's trade or business: Payments for services of a parent are not subject to social security and Medicare taxes, unless the services are for domestic services and several other criteria apply. Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided. More information: Election for Married Couples Unincorporated Businesses  Publication 334, Tax Guide for Small Business Publication 15, Circular E, Employer Tax Guide Married Couples in Business   Share this tip on social media -- #IRSTaxTip:Understanding taxes when a family member signs the paycheck. http://ow.ly/pVP150KYp40     Back to top           Thank you for subscribing to IRS Tax Tips, an IRS e-mail service. For more information on federal taxes please visit IRS.gov. This message was distributed automatically from the IRS Tax Tips mailing list. Please Do Not Reply To This Message.

 

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