Social Security Taxes in a Husband and Wife Business

If you and your spouse are working together in your own business, and have not set up your business as a corporation, you may have either a sole proprietorship or a partnership for U.S. income tax and social security tax purposes. The way in which the business is treated will determine each of your social security obligations and how each of you earn social security benefits.

When you work for an employer, you have social security taxes deducted from your pay, and the employer pays a corresponding amount. When you are in business for yourself, you report your earnings for social security purposes when you file your annual federal income tax return, and pay the tax directly to the Internal Revenue Service (IRS). For self-employed persons, the self-employment tax is the equivalent of the social security and Medicare tax. If you have $400 or more in net earnings from self-employment during the year, you must file Schedule SE, Self-Employment Tax, along with your federal income tax return. Depending on how much tax you expect to owe at the end of the year, you may also have to make quarterly estimated tax payments during the year, to cover your federal income tax and self-employment tax liabilities. 

One Spouse As An Employee of the Family-Owned Business

If one spouse substantially controls the business in terms of management decisions, and the second spouse is under the direction and control of the first spouse, it could be deemed that there is an employer/employee relationship. In that case, the second spouse is an employee subject to income tax and FICA (social security and Medicare tax) withholding. In this employer/employee relationship, it would be necessary to define the second spouse’s salary or wages, in order to determine how much should be withheld and reported for federal, state, and local income tax purposes, and for social security tax purposes. As an employer, the business would have to file Form 941, Employer’s Quarterly Federal Tax Return, to report and pay the payroll taxes. 

Spouses As Partners In The Business