One of the biggest advantages of running your own business is that you can hire family members. Having family members in your business can bring you a number of benefits, including making it easier for you to run your business in a more cost-effective manner. Your payroll tax requirements, however, may not be the same when you employ or partner with family members.
In this blog post, we look at the IRS payroll tax responsibilities of married couples running a joint venture and filing a joint return.
Determining the Business Relationship and Payroll Taxes
The applicable payroll taxes or whether or not a married couple running a joint venture must pay any payroll taxes depends on how much say they have in the business.
Employee
If your spouse is working for you as an employee, i.e. they are on a payroll, and you are primarily managing the business, they must pay FICA (Medicare and Social Security tax), and income taxes to the IRS. As an employer, it is your responsibility to withhold the required amount of money from their paychecks and also pay an equal amount from your earnings to the IRS.
Partnership
If your spouse has the same power and authority and equally contributes capital to the business, the IRS will consider them to be your business partner. In such a business relationship, you must report your business’ income on Form 1065, U.S. Return of Partnership Income (PDF).
Small Business and Work Opportunity Tax Act of 2007
The Small Business and Work Opportunity Tax Act of 2007 is a provision that allows married couples running a business not to be treated as a partnership, but a joint venture. For this, they must meet these conditions:
- Be the only members of the business
- Must contribute materially to the business
- Agree to apply for the provision
- Must have filed a joint return
Each spouse must divide all business items including loss, income, credit, and deduction, as per their interest in the business and report their respective shares in the necessary forms. This is how the IRS determines their individual tax responsibilities. Effective from December 31, 2006, the provision enables each spouse to earn credits for social security earnings towards retirement; although it does increase their total tax responsibilities. Speak to a tax attorney at the Law Offices of Nick Nemeth to gain more information about the provision and how it may affect your tax responsibilities.
Wrapping Up
Running a business with your spouse has its own benefits, although you still have payroll tax responsibilities. The IRS payroll tax responsibilities may be different from what you have for regular employees. Speak to a tax attorney at the Law Offices of Nick Nemeth if you have IRS debt due to your payroll tax obligations and avoid any payroll or other IRS tax debt issues. Call at (972) 426-2553 to schedule your free no-obligation consultation with Nick Nemeth, or fill out our contact form.
