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Family Employees

Child Employed by Parents
Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security or Medicare taxes if the trade or business is a sole proprietorship or partnership in which each partner is a parent of the child. Although not subject to federal or state unemployment tax, a child may be subject to income tax withholding

One Spouse Employed by Another
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.

Covered Services of a Child or Spouse
The wages for the services of a child or spouse are subjected to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:

1. A corporation, even if it is controlled by the child's parent or the individual's spouse,
2. A partnership, even if the child's parent is a partner, unless each partner is a parent of the child,
3. A partnership, even if the individual's spouse is a partner.

Parent Employed by Child
The wages for the services of a parent employed by his or her child in a trade or business are subject to income tax withholding and social security and Medicare taxes.

Wages paid to a parent employed by his or her children are not subject to FUTA tax, regardless of the type of services provided.

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