Hiring Family Members - A General Rule to Remember
Hiring family members is often a great idea, but it can also be difficult if there are conflicts or miscommunication, so it's best to remember one rule when employing your spouse, child, parent, or other family member: Treat the family member the same as any other employee. In some cases (discussed below) children must be treated differently, but for adults everything you do for other employees, and every payroll tax you pay for other employees, and every benefit you give to other employees should be the same for family.
Children on the Payroll: Child Labor Laws
Before you hire your child (or any child) to work in your business), review the federal and state child labor laws. Federal and state laws may be different, and the strictest law is controlling, so be sure to look at both. federal child labor laws restrict the hours of work, times of day, and types of work children may perform at different ages. For example, children under 18 are not allowed to operate dangerous equipment, and children under 14 are not allowed to work in any type of business. Read more about the federal child labor laws".
If you are sole owner of your business and your business is not a corporation, you have fewer limitations: your children still cannot do hazardous work, but they are not limited on the hours or days of work.
State laws for hiring children may be different, so check with your state's employment division, or use this federal wage and hour map to find information on child labor laws in your state
Hiring and Paying Children
Some things you should know about paying children and employment taxes for children:
- You don't have to pay FUTA (federal unemployment tax) on wages of your children
- If the business is 100% family owned and it is not a corporation, no FICA tax (Social Security and Medicare) needs to be paid by the children or the business on the child's wages.
- Have each child complete all the new hire forms, including W-4 form for withholding income taxes. If your child makes less than $800 a year the child may be exempt from taxes and no withholding is required. See this article about how to complete Form W-4 for more information on withholding and being exempt from withholding.
- You must withhold income taxes from the pay of children. They may get it back if their total income is not large, but you must still withhold.
- If your business is a partnership, and each partner is the parent of a child working in the business, the children's wages are not subject to FICA taxes, but are subject to withholding.
For All Family Employees
If a family member is working for you without pay, this section doesn't apply. For family members who are paid by your business, you must:
- Get a W-4 form from each family member at time of hire and withhold federal income taxes based on the information on the W-4 form
- Withhold FICA taxes from family members and include family member pay when calculating FICA taxes your business owes
- Include family member pay in calculations for unemployment taxes and worker's compensation
- Pay overtime to family members in the same way as other employees, at 1 1/2 times base pay and after 40 hours in a work week
Spouses as Employees
If your spouse is working for pay in your business, you must withhold federal income taxes and FICA taxes from pay. If you are self employed (not a corporation or a partnership), your spouse's pay does not have to be included in your unemployment tax calculations. If your business is a corporation or a partnership, you must include that spouse's pay in unemployment tax calculations.
Spouse as Co-owner
If you and your spouse have an equal say in the business, neither of you is an employee, but you may be considered as co-owners for self-employment tax purposes and a partnership for tax purposes. Some husband-wife businesses may be considered as a qualified joint venture, which allows for more simplified reporting. The husband-wife business is more complicated than it might seem, so check with your tax advisor before starting a husband-wife business or paying business taxes for such a business. This IRS article on husband-wife businesses may also be helpful.