Since hiring family members is common practice, it is important for business owners to understand payroll tax rules that apply to their specific situation.
The IRS has defined a family member for purposes of these rules as a spouse (including legally married same sex spouses), lineal descendants (sons and daughters), and ancestors. Generally, a family employee is treated like any other employee for payroll tax purposes. Their services are subject to federal income tax withholding (FITW), social security and Medicare (FICA), federal unemployment tax (FUTA), and possibly various state and city taxes.
However, there are certain circumstances that allow a family member’s wages to be exempt for FICA or FUTA purposes.
Learn more about special federal payroll tax rules applicable to family members here.
