From Toni Barnes at Consumer Direct:
Family Employees Statutory nonemployees. Direct sellers, qualified real
estate agents, and certain companion sitters are, by law,
considered nonemployees. They are generally treated as Child employed by parents. Payments for the services
self-employed for all federal tax purposes, including in- of a child under age 18 who works for his or her parent in a
come and employment taxes. trade or business are not subject to social security and
Medicare taxes if the trade or business is a sole proprietor-
Treating employees as nonemployees. You will gener- ship or a partnership in which each partner is a parent of
ally be liable for social security and Medicare taxes and the child. If these payments are for work other than in a
withheld income tax if you do not deduct and withhold trade or business, such as domestic work in the parent’s
these taxes because you treated an employee as a non- private home, they are not subject to social security and
employee. You may be able to calculate your liability using Medicare taxes until the child reaches age 21. However,
special section 3509 rates for the employee share of social see Covered services of a child or spouse below. Pay- security and Medicare taxes and the federal income tax ments for the services of a child under age 21 who works withholding. The applicable rates depend on whether you for his or her parent, whether or not in a trade or business, filed required Forms 1099. You cannot recover the em- are not subject to federal unemployment (FUTA) tax. Al- ployee share of social security, or Medicare tax, or income
tax withholding from the employee if the tax is paid under though not subject to FUTA tax, the wages of a child may
section 3509. You are liable for the income tax withholding be subject to income tax withholding.
regardless of whether the employee paid income tax on
the wages. You continue to owe the full employer share of One spouse employed by another. The wages for the
social security and Medicare taxes. The employee remains services of an individual who works for his or her spouse in
liable for the employee share of social security and Medi- a trade or business are subject to income tax withholding
care taxes. See Internal Revenue Code section 3509 for and social security and Medicare taxes, but not to FUTA
details. Also see the Instructions for Form 941-X. tax. However, the payments for services of one spouse
Section 3509 rates are not available if you intentionally employed by another in other than a trade or business, disregard the requirement to withhold taxes from the em- such as domestic service in a private home, are not subject ployee or if you withheld income taxes but not social to social security, Medicare, and FUTA taxes. security or Medicare taxes. Section 3509 is not available
for reclassifying statutory employees. See Statutory employees
on page 9. Covered services of a child or spouse. The wages for
If the employer issued required information returns, the the services of a child or spouse are subject to income tax
section 3509 rates are: withholding as well as social security, Medicare, and FUTA
· For social security taxes; employer rate of 6.2% plus taxes if he or she works for:
20% of the employee rate of 6.2%, for a total rate of · A corporation, even if it is controlled by the child’s
7.44% of wages. parent or the individual’s spouse,
· For Medicare taxes; employer rate of 1.45% plus · A partnership, even if the child’s parent is a partner,
20% of the employee rate of 1.45%, for a total rate unless each partner is a parent of the child,
of 1.74% of wages. · For income tax withholding, the rate is 1.5% of · pAa prtanretnr,e orsrhip, even if the individual’s spouse is a
wages.
· An estate, even if it is the estate of a deceased
If the employer did not issue required information re- parent.
turns, the section 3509 rates are:
· For social security taxes; employer rate of 6.2% plus Parent employed by child. The payments for the serv-
40% of the employee rate of 6.2%, for a total rate of ices of a parent employed by his or her child in a trade or
8.68% of wages. business are subject to income tax withholding and social
· For Medicare taxes; employer rate of 1.45% plus security and Medicare taxes. Social security and Medicare
40% of the employee rate of 1.45%, for a total rate taxes do not apply to payments made to a parent for
of 2.03% of wages. services not in a trade or business, but they apply to
domestic services if: · For income tax withholding, the rate is 3.0% of wages. · The parent cares for a child who lives with the parent’s
child and the child is under age 18 or requires
Relief provisions. If you have a reasonable basis for adult supervision for at least 4 continuous weeks in a
not treating a worker as an employee, you may be relieved calendar quarter due to a mental or physical condifrom
having to pay employment taxes for that worker. To tion and
get this relief, you must file all required federal tax returns, · The parent’s son or daughter is a widow or widower, including information returns, on a basis consistent with divorced, or living with a spouse who, because of a your treatment of the worker. You (or your predecessor) physical or mental condition that lasts at least 4 must not have treated any worker holding a substantially
similar position as an employee for any periods beginning continuous weeks, cannot care for the child during
after 1977. See Publication 1976, Do You Qualify for Relief such period.
Under Section 530?
Payments made to a parent employed by his or her child
IRS help.