One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may be different from those that apply to other employees.

 

If your trade or business is a sole proprietorship, payments to your child under the age of 18 are not subject to social security and Medicare taxes.  Until the child reaches 21, his or her  wages are also not subject to Federal Unemployment Tax Act (FUTA) tax. However, payment for the services of a child is subject to Federal and state income tax withholding, regardless of age. 

Keep in mind if your business is a corporation, the child is not exempt from social security, Medicare taxes or federal unemployment tax.  In addition, if the child works for a partnership where any one of the partners is not a parent of the child, the child is not exempt from social security and Medicare taxes or from Federal Unemployment tax.

Please contact our office if you have questions about hiring your child or another family member as an employee of your business.