Business Taxes: Employing Spouses – One employed by another

Employing Spouses

In our recent posts in the Bullseye Tax Relief Business Taxes blog post series we’ve been discussing the different IRS tax implications associated with the different scenarios in which one employs or works with their family or spouse. To learn more about employing family members, check out our posts Business Taxes: Employing Family and Business Taxes: Employing Parents. 

Most recently, we’ve been going into detail about the different potential scenarios when two spouses work together. In Business Taxes: Employing Spouses, we discussed the two main scenarios: one employee works for another as a typical employee and the two spouses work together in a business partnership. In the posts, Business Taxes: Employing Spouses – Business Partnership and Business Taxes: Employing Spouses – Benefits of a  Partnership, we discussed this business partnership scenario, and more specifically the qualified joint venture, in greater detail.

In today’s post, we’ll talk a little bit more about the tax responsibilities associated with employing a spouse as an essentially normal employee.

Employment Taxes Associated with Employing a Spouse

As of February 26th, 2021, according to the IRS Page Married Couples in Business, “if your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for him or her. 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 tax. For more information, refer to Publication 15, Circular E, Employer Tax Guide.”

For those that have been paying close attention to our recent posts about employing family members and the subtle differences in the tax responsibilities, they may remember another recent scenario in which FUTA tax wasn’t required, while income tax withholding and Social Security and Medicare taxes were still required like usual – when a person is employing their parent! If you don’t remember, or you’d like a quick refresher, check out the blog post here: Business Taxes: Employing Parents. Although not having to pay FUTA taxes might seem like a miniscule victory, according to the IRS Page, Topic No. 759 Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements, as of February 26th, 2021, “The FUTA tax rate is 6.0%. The tax applies to the first $7,000 you paid to each employee as wages during the year. The $7,000 is often referred to as the federal or FUTA wage base. Your state wage base may be different based on the respective state’s rules.” 

While these numbers could potentially vary by state, in general this means a savings of $420 for a business over the course of a year, which won’t necessarily turn things around, but it is money that can be invested elsewhere.

If your business is struggling with the intricacies of IRS tax codes or concerned with recent notices or letters from the IRS, please feel free to contact one of our highly trained business tax resolution specialists today. We offer a free initial consultation and analysis for new clients so that they can learn about their tax resolution options worry and cost-free. Give us a call at (844) 582-3323!


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