Are you considering involving your family in your business? It's a strategic move with numerous advantages, extending far beyond simply giving cousin Jimmy a job. Nevertheless, does employing family members translate to tax savings? Truth is the answer isn't a clear-cut yes or no.
But one thing is clear when it comes to employing family members - the real benefits lie in hiring your own children. Here's a breakdown of the enticing incentives involved:
Income Tax Withholding: If your business is a sole proprietorship or a partnership where every partner is a parent of the child, payments for your child's services are subject to income tax withholding, regardless of age.
Social Security and Medicare Taxes: Here's where it gets interesting. If your child is under 18, you're off the hook for Social Security and Medicare taxes, but you'll need to pay up if they're 18 or older.
Federal Unemployment Tax Act (FUTA) Tax: Good news for parents of kids under 21 - no FUTA taxes for you! But once they hit 21, brace yourself for some FUTA obligations.
It is important to point out, that if your business falls under the corporate, partnership (where not every partner is a parent), or estate category, things get a tad more complicated:
Income Tax Withholding, Social Security, Medicare, and FUTA Taxes: Brace yourself, because regardless of age, your child's earnings are subject to the full spectrum of taxes. Yep, Uncle Sam wants his share!
So, there you have it - the lowdown on hiring your own family. Remember, while family employment can be a win-win, always consult with a tax professional to ensure you're crossing your T's and dotting your I's.
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