One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may vary from those that apply to other employees. The following information may assist you with pointing out some differences to consider.
Children employed by parents
Payments for domestic work in the parent’s private home:
- Are not subject to income tax withholding unless the payments are for domestic work in the parent’s home.
- Are not subject to social security and Medicare taxes until the child reaches age 21.
- Are not subject to Federal Unemployment Tax Act (FUTA) until the child reaches age 21.
Employed in the parent’s sole proprietorship or a partnership in which each partner is a parent of the child:
- Payments for the services of a child are subject to income tax withholding regardless of age.
- Payments for the services of a child under the age 18 are not subject to social security and Medicare taxes.
- Payments for the services of a child under age 21 are not subject to FUTA tax. If the child is 21 years or older, then payments for the services of a child are subject to FUTA taxes.
