Hiring Employees
What if You Employ a Family Member
Child employed by parents. Payments for the services of a
child under the age of 18 who works for his or her parent in a trade or business (sole
proprietorship or a partnership in which each partner is a parent of the child) are not
subject to social security and Medicare taxes. If these services are for work other than
in a trade or business, such as domestic work in the parent's private home, they are not
subject to social security and Medicare taxes until the child reaches 21. Payments for the
services of a child under the age of 21 who works for his or her parent whether or not in
a trade or business are not subject to Federal unemployment (FUTA) taxes. Although not
subject to these taxes, a child may still be subject to income tax withholding.
One spouse employed by another. The wages for the services of
an individual who works for his or her spouse in a trade or business are subject to income
tax withholding and social security and Medicare taxes, but not to FUTA taxes. However,
the services of one spouse employed by another in other than a trade or business, such as
domestic service in a private home, are not subject to social security, Medicare, and FUTA
taxes.
Covered services of a child or spouse. The wages for the
services of a child or spouse are subject to income tax withholding as well as social
security, Medicare, and FUTA taxes if he or she works for:
- A corporation, even if it is controlled by the child's parent or the
individual's spouse,
- A partnership, even if the child's parent is a partner, unless each
partner is a parent of the child,
- A partnership, even if the individual's spouse is a partner, or
- An estate, even if it is the estate of a deceased parent.
Parent employed by child. The wages for the services of a
parent employed by his or her child in a trade or business are subject to income tax
withholding and social security and Medicare taxes.
Important References
Publication
15 Circular
E, Employers Tax Guide
