Hiring family members into your business has many advantages. Of course, you won’t understand why if you haven’t started doing it yet. First, you can have financial benefits by doing so. Second, you are entitled to tax benefits for your business. Third, it can help you establish a wonderful opportunity for a family business to flourish. If you have sons and/or daughters who are ready to work with you, go ahead and give them the chance to work for your family business.
Despite those advantages, you cannot deny the fact that you must be responsible for your tax duties. There are tax obligations when hiring a family member(s) that you need to understand:
Reporting Is Always
As always, the IRS considers cash as taxable. This is regardless of whether or not such money is from compensation or tips during the time an employee incurs work —whether part-time or full-time. But this levying of taxes can be avoided when a business owner opts to hire his son or daughter to work for part-time jobs with wages lower than $600 per family member each single year.
Be aware that the government will always be vigilant in checking your financial data. If you think that hiring family members as employees can help you save money when done illegally, you’re wrong. Your business financial books can be used as basis during an audit. If you’re not taking withholding related to cash payments to your family members, a civil case can perhaps be filed against you. Yes, the IRS and other tax authorities can file a complaint that can be a civil case against you. You have to take some extra precautionary measures to avoid dealing with the IRS.
Withholding of Taxes
The estimated income tax must be withheld granted that you hire an immediate family member, or your spouse, to work as an employee. Aside from that, the social Security and Medicare taxes should also be withheld. However, the federal unemployment tax (FUTA) is still to be followed. You need to remember this, considering that you’re eager to involve the members of your immediate family to work for your business.
Some small-scale businesses hire family members, but don’t meet the requirements and qualifications of withholding tax. This is in the case when the hired children are under 18 years of age. They don’t have the so-called FUTA withholding. Their cash salary is always intact. Then, if you pay your children working for you only $50 every quarter, there is no need for financial reporting and tax withholding in any way. In this case, there’s no age requisite.