Tax treatment for family members working in the family business
One of the advantages of someone running their own business is hiring family members. But when including family members in business operations, certain tax treatments and employment tax rules apply. Here are some facts to know when working with a spouse, parent or child.

Both spouses carrying on the trade or business
If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. If so, they should report income or loss from the business on Form 1065. They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. But, the spouses can elect not to treat the joint venture as a partnership by making a qualified joint venture election. 

Qualified joint venture
Spouses may elect treatment as a qualified joint venture instead of a partnership. A qualified joint venture conducts a trade or business where:

• The only members are a married couple who file a joint return,
• Both spouses materially participate in the trade or business, and
• Both spouses elect not to be treated as a partnership.

Only businesses owned and operated by spouses as co-owners and not in the name of a state law entity, such as a limited partnership or limited liability company, are eligible for the qualified joint venture election. Find more information on joint ventures in Publication 541, Partnerships.
Spouses electing qualified joint venture status are sole proprietors for federal tax purposes. Each spouse must file a separate Schedule C to report their share of profits and losses. They don’t need an EIN unless their sole proprietorship must file excise, employment, alcohol, tobacco or firearms returns. One spouse cannot continue to use the partnership’s Employer Identification Number (EIN) for the qualified joint venture. The EIN must stay with the partnership; it’s used by the partnership for any year in which the business doesn’t meet qualified joint venture requirements.

Employment taxes
If the business has employees, either of the spouses as sole proprietors may report and pay the employment taxes. The spouse, as an employer, must have an EIN for their sole proprietorship. If the business filed or paid employment taxes for part of the year under the partnership's EIN, the spouse may be considered the employee’s “successor employer” for purposes of figuring whether wages reached the Social Security and federal unemployment wage base limits.
 
One spouse employed by another. The wages for the services of an individual who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes but not to the Federal Unemployment Tax Act (FUTA).

Child employed by parents. Payments for the services of a child under age 18 aren’t subject to Social Security and Medicare taxes, if the business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments to a child under age 21 aren’t subject to FUTA. Payments are subject to income tax withholding, regardless of the child’s age.
Payments for the services of a child are subject to income tax withholding as well as Social Security, Medicare and FUTA taxes if they work for:

• A corporation, even if it’s controlled by the child's parent, or
• A partnership, even if the child's parent is a partner, unless each partner is a parent of the child.

Parent employed by child. The wages for the services of a parent employed by their child are subject to income tax withholding and Social Security and Medicare taxes. They’re not subject to FUTA tax.
Employees complete Form W-4 so that their employer can withhold the correct federal income tax from their pay. The IRS encourages everyone to use the Tax Withholding Estimator to help them make sure they have the right amount of tax withheld from their paycheck. The estimator automatically links to Form W-4, Employee’s Withholding Allowance Certificate, which they can then fill out and submit to their employer.

Taxpayers who filed an extension can find resources on IRS.gov that can help them file their tax return. One of these resources is Publication 5307, Tax Reform Basics for Individuals and Families. This publication is now available in several different languages.
This publication has info to help individual taxpayers understand the tax reform law. It gives tips about actions they may need to take to comply with federal tax return filing requirements.
The pub can be especially helpful for extension filers who haven’t filed their tax returns and those who were otherwise unable to file their return by the deadline. Taxpayers who haven’t filed over the summer can file their tax returns whenever they are ready. They do not need to wait until the October 15 extension deadline to file.
This online publication is available on IRS.gov in these languages.

• Chinese – Traditional
• Chinese – Simplified
• Spanish – Mainland
• Spanish – Puerto Rico
• Korean
• Vietnamese
• Russian

Here are some of the key changes affecting tax returns covered in all versions of the publication:

• New tax rates. There are now seven income tax brackets, ranging from 10% to 37%.
• The standard deduction nearly doubled. The basic standard deduction is now:
  • $12,000 for singles and married people filing separate returns.
  • $18,000 for heads of household.
  • $24,000 for married couples filing a joint tax return.
• Some deductions are limited or discontinued.  Here are a couple examples:
  • The state and local tax deduction is limited to $10,000, or $5,000 if married and filing a separate return.
  • New limits apply to mortgage interest.
  • The miscellaneous itemized deduction for job-related costs and certain other expenses is no longer available.
• Changes to the child tax credit. This credit increased, so more people now qualify. The maximum credit is now $2,000 for each qualifying child under age 17. In addition, the income limit for getting the full credit is $400,000 for joint filers and $200,000 for other taxpayers.
• New credit for other dependents. A $500 credit is available for each dependent who does not qualify for the child tax credit. This includes older children and qualifying relatives, such as a parent.
• Personal and dependency exemptions suspended. This means that an exemption can no longer be claimed for a tax filer, spouse and dependents

The publication gives taxpayers detailed information about performing a Paycheck Checkup using the Tax Withholding Estimator. The pub also tells people how to update Form W-4, Employee’s Withholding Allowance Certificate, with their employer after doing a Paycheck Checkup.

Pursuant to Public Act 101-0177 the Illinois Equal Pay Act now bans employers and employment agencies from asking about applicants’ past wage and compensation histories. This law takes effect on September 29, 2019. Employers can be penalized for asking the applicant or the applicant’s current or former employers for wage or salary history. If they have not yet done so, employers should review their employment applications to make sure they do not ask for salary and wage history. They should also train those involved in hiring on the new law. For more information you may contact the Illinois Department of Labor at the Equal Pay Hotline 866-372-4365.
Frequently Asked Questions on Wage History Ban

1. Can employers ask for salary history or use salary history when determining whether to offer a job or when determining how much to pay the job applicant?
   No. It is unlawful for an employer to request or require a wage or salary history from a job applicant as a condition of being considered for employment or as a condition of employment.
2. Can employers ask about employment benefits that have been provided in the past to a job applicant during the application process?
    No. It is also unlawful for an employer to request or require a job applicant to disclose benefits or other compensation received at any current or former employer as a condition of being considered for employment or as a condition of employment.
3. Who is covered by the law?
   Illinois job applicants. This includes applicants to part-time and full-time positions, temporary or permanent, whether hourly or salary. The law however does not cover independent contractors.
4. Can employers use recruiters to determine applicants' salary histories?
   No. Recruiters, employment agencies, staffing agency or any other agent of an employer may not screen applicants based on their current or prior wages or salary histories, benefits or other compensation.
5. Can an employer ask a current or former employer of the job applicant for the applicant’s wage history?
   No. It is unlawful for an employer or their agent to ask for a wage or salary history, benefits or other compensation from an applicant’s employer or former employers when conducting verification or reference checks.
6. What if the employee already works for the company where he or she is applying?
   The prohibition does not apply if a job applicant’s salary history is a matter of public record or if the applicant is a current employee applying with the same employer.
7. Can an employer prohibit employees from discussing their salaries?
   No. An employer cannot prohibit its employees from disclosing their own salaries, benefits or other compensation to other individuals.
8. Can job applicants volunteer salary history information?
    Yes. Applicants may voluntarily disclose their prior wage or salary history including benefits or other compensation. The employer shall not consider or rely on the voluntary disclosures as a factor in determining whether to offer a job applicant employment, in making an offer of compensation, or determining future wages, salary or benefits.
9. Can employers provide a salary range to an applicant or discuss with an applicant their salary and benefits expectations?
   Yes. An employer can provide information about the wages, benefits, compensation, or salary offered in relation to a position. The employer can also engage in discussions with an applicant about the applicant’s expectations with respect to wage or salary or benefits.
10. Who do I contact if I have questions about the new law?
    You should call the Illinois Department of Labor at the Equal Pay Hotline 866-372-4365.

These tax tips can help new business owners find success
Starting a business can be very rewarding. It can also be a little overwhelming. From business plans to market strategies, and even tax responsibilities…there are many things to consider. Here’s what new business owners can do to help get off to a good start.

• Choose a business structure. The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:
  • Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
  • Partnership: An unincorporated business with ownership shared between two or more people.
  • Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
  • S Corporation: A corporation that elects to pass corporate income, losses, deductions, and credits through to the shareholders.
  • Limited Liability Company: A business structure allowed by state statute.
• Choose a tax year. A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:
  • Calendar year: 12 consecutive months beginning January 1 and ending December 31.
  • Fiscal year: 12 consecutive months ending on the last day of any month except December.
• Apply for an employer identification number. An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need an EIN.
• Have all employees complete these forms:
  • Form I-9, Employment Eligibility Verification
  • Form W-4, Employee’s Withholding Allowance Certificate
• Pay business taxes. The form of business determines what taxes must be paid and how to pay them.

Taxpayers interested in starting a business can find information for some industries on the Industries/Professions Tax Centers webpage. Each state has additional requirements for starting and operating a business. Prospective business owners should visit their state's website for info about state requirements.

More information:

• Small Business Admiration’s 10 steps to start your business.

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