I'm looking to start my own family run small business in Az. As a Sole Proprietor do I have to withhold taxes if all my employees are my children and spouse?
If you pay wages to family members, then you must withhold income taxes, Social Security and Medicare, and Unemployment insurance tax. You must also carry worker's compensation insurance.
If the family members only work occasionally, you might be able to classify them as independent contractors, but many restrictions apply, so be careful. If they are ICs, then in January you will give them a 1099MISC that lists their earnings for the year. They will pay taxes based on their total earnings.
If you classify family members as independent contractors, you shift the tax burden from you to them. They will have to pay quarterly estimated taxes on what they earn and they will have to pay self-employment tax on their earnings. For information on the difference between employees and independent contractors, you might want to check the IRS web site at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
If you pay wages to family members, then you must withhold income taxes, Social Security and Medicare, and Unemployment insurance tax. You must also carry worker's compensation insurance. If the family members only work occasionally, you might be able to classify them as independent contractors, but many restrictions apply, so be careful. If they are ICs, then in January you will give them a 1099MISC that lists their earnings for the year. They will pay taxes based on their total earnings. If you classify family members as independent contractors, you shift the tax burden from you to them. They will have to pay quarterly estimated taxes on what they earn and they will have to pay self-employment tax on their earnings. For information on the difference between employees and independent contractors, you might want to check the IRS web site at http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
If you are a sole proprietor you will not owe SS or Medicare on your children's wages until they turn 18.
If you're a sole proprietor (in business for yourself): (a) you file a 'Schedule C' with your personal tax return, (b) you pay 'Self-Employment Tax' (social security and medicare tax), and (c) you must pay 'Estimated Taxes' (method used to pay tax on income that is not subject to withholding).
jbeidle | Contributor | 9/15/2009 - 4:53 pm
BizResearcher | Window Shopper | 9/16/2009 - 1:43 pm
jbeidle | Contributor | 10/7/2009 - 1:50 pm
CrestCapital | Creator | 9/7/2009 - 8:41 am
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