Hiring Employees
What if You Employ a Family Member

Child employed by parents. Payments for the services of achild under the age of 18 who works for his or her parent in a trade or business (soleproprietorship or a partnership in which each partner is a parent of the child) are notsubject to social security and Medicare taxes. If these services are for work other thanin a trade or business, such as domestic work in the parent's private home, they are notsubject to social security and Medicare taxes until the child reaches 21. Payments for theservices of a child under the age of 21 who works for his or her parent whether or not ina trade or business are not subject to Federal unemployment (FUTA) taxes. Although notsubject to these taxes, a child may still be subject to income tax withholding.

One spouse employed by another. The wages for the services ofan individual who works for his or her spouse in a trade or business are subject to incometax withholding and social security and Medicare taxes, but not to FUTA taxes. However,the services of one spouse employed by another in other than a trade or business, such asdomestic service in a private home, are not subject to social security, Medicare, and FUTAtaxes.

Covered services of a child or spouse. The wages for theservices of a child or spouse are subject to income tax withholding as well as socialsecurity, Medicare, and FUTA taxes if he or she works for:

• A corporation, even if it is controlled by the child's parent or the individual's spouse,
• A partnership, even if the child's parent is a partner, unless each partner is a parent of the child,
• A partnership, even if the individual's spouse is a partner, or
• An estate, even if it is the estate of a deceased parent.

Parent employed by child. The wages for the services of aparent employed by his or her child in a trade or business are subject to income taxwithholding and social security and Medicare taxes.

Important References

Publication 15      Circular E, Employers Tax Guide