Can my wife work for me?
September 29, 2009 8:33 AM   Subscribe

Is there a financially beneficial way to bring my spouse on as an employee in my consulting business?

My wife has been a stay at home mom for 10 years and has been looking for part-time work for the last 1-2 years without luck. She is highly educated in her field, but most people simply want full-timers. As a result she has remained unemployed. I have an on-the-side consulting business that grosses 20-30K each year. Essentially, lawyers send me stuff to review, I provide an opinion, they pay me. Is there any way I could bring the spouse on as an employee and get some sort of financial benefit to the household (not to mention getting certain things done that I ordinarily don't have time for such as website updates and/or more sophisticated communication with my clients)?
posted by teg4rvn to Work & Money (8 answers total) 1 user marked this as a favorite
It's not really clear what you're asking. Yes your wife could work for/with you. Yes that could be financially beneficial. Why wouldn't it be? What problem are you worried about?
posted by Perplexity at 9:09 AM on September 29, 2009

Response by poster: To clarify: For example, is there any tax benefit to having an employee drawing a salary as opposed to someone just doing work and all the check going to "me"?
posted by teg4rvn at 9:13 AM on September 29, 2009

Details, including what kind of corporation you are, might be helpful. At the end of the day, you should probably get your answers from your accountant, but people here may be able to help you put together the questions you should ask.

At the end of the day, the "beneficial" bit may depend on how much money is coming in. Someone's going to have to pay taxes, either she'll have to pay it all herself or your corporation will pay part of it depending on how you are organized, and you may have to do some "what if" math to figure out where the line is that the taxes are worth it. Again, the accountant can help you with that.
posted by Lyn Never at 9:15 AM on September 29, 2009

if you did a company matching retirement program, you'd both be able to max our your retirement savings instead of just you maxing out your retirement savings.
posted by jrishel at 9:30 AM on September 29, 2009 [1 favorite]

You need a good tax accountant. I believe FICA gets special treatment for family members, but tax laws change, and I am not and Accountant. I used to own a business, and found accountants to vary a lot in competence.
posted by theora55 at 9:45 AM on September 29, 2009

You would get a better tax break by employing your children because they are not subject to social security taxes and they don't have to pay income tax on their first $5000 because of their personal deduction.

So instead of paying yourself your last $5000, you pay your child. This saves roughly 15% of social security taxes that you would pay, $750, and at least another $750 of income tax.
posted by JackFlash at 1:17 PM on September 29, 2009

More specifically, get a good tax accountant with a lot of experience with small business / self employed clients.
posted by Jacqueline at 7:45 PM on September 29, 2009

IANYCPA, but the main benefit here would be getting social security credits for your wife. Otherwise, you're earning the exact same amount either way and paying the employer and employee side of FICA either way, and you might possibly get hit for employment taxes you wouldn't owe otherwise, plus the effort (or expense) of calculating the checks, filing the reports, etc. For a business that only *grosses* $30k... still consult your CPA, but I lean towards thinking it might not be worth it if you're a sole prop and staying that way. I don't think you can win on FICA; if you don't take it as a business expense, then it comes out on your self-employment tax either way. The FICA exemptions for family members are only for kids under 18.

You *might* see some benefit conceivably to organizing as an S-corp, which would involve paying *somebody* officer salary, and then the amount over the salary wouldn't be taxable for SE tax. This is where you really need the CPA, if you're actually making money there are often better ways to organize than sole proprietorships.
posted by larkspur at 4:00 AM on September 30, 2009

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