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.
If the business is a 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 age 18 are not subject to social security and Medicare taxes. If the child is 18 years or older, then payments for the services of a child are subject to social security and Medicare taxes.
Payments for the services of a child under age 21 are not subject to Federal Unemployment Act (FUTA) tax. If the child is 21 years or older, then payments for the services of a child are subject to FUTA taxes.
If the business is a corporation, a partnership (unless each partner is a parent of the child), or an estate (even if it is the estate of the deceased parent of the child):
Payments for services of a child are subject to income tax withholding, social security taxes, Medicare taxes and FUTA taxes regardless of age.