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Understanding the Tax Implications of Employing Family Members
Hiring family members can offer both financial and tax advantages, but it’s essential to understand how employment tax rules apply. Whether you’re employing a child, spouse, or parent, payroll tax obligations differ based on your business structure. Understanding these rules can help you maximize deductions, shift income efficiently, and remain compliant with IRS regulations.
For example, if you operate a sole proprietorship and hire your child under 18, their wages may be exempt from Social Security and Medicare (FICA) taxes. This can provide a tax-efficient way to pay for their education while reducing your overall taxable income. However, if your business is structured as a corporation or partnership, wages paid to a child are subject to full payroll taxes.
Similarly, employing a spouse or parent in your business comes with its own tax considerations. For spouses, payroll taxes apply in most cases, but business owners may qualify for additional benefits, such as health insurance deductions. Parents working for their children may be exempt from Federal Unemployment Tax (FUTA), depending on the nature of the work.
Understanding these distinctions is crucial to making informed business decisions. Our 2025 Employing Family Members Guide breaks down key tax requirements and planning strategies to help you stay compliant while optimizing your tax benefits. Download the guide today to learn how hiring family members can benefit you.
Need expert tax advice? Contact Aldaris CPA for personalized guidance on payroll tax strategies and business planning.