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It seems to me that the rules are such that if you hire and pay a family member such as a spouse or child, you are not required to pay any FICA for them. You do have to report their income on a 1099, but it is then up to them to report that on their taxes and pay whatever is appropriate.

So my question is what happens if DH, who is self-employed, actually paid me for what I do for the business? Could he just pay me, declare that as an expense as is done with other 1099 workers? If he did that, then he would not be keeping that money as his salary, and he wouldn't have to pay that 15% FICA on the money. As I max out on FICA anyhow, it seems to me that even though I'd have to declare that money as income and pay taxes on it, we'd still be saving 15% since we wouldn't have to pay FICA.

This seems to easy and straightforward to me, but from what I've read in the tax publications, it certainly looks legal. Has anyone done this? What am I missing?
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What you're looking for is in the second half of this article.

http://www.fool.com/taxes/2002/taxes020628.htm

You'd probably need to be an employee, not on a 1099. Depending on your relative incomes, you might get a little SS tax savings, but your spouse's business would still have to pay SS on your wages, even if you are over the SS limit.

--Peter
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So my question is what happens if DH, who is self-employed, actually paid me for what I do for the business?

What do you do for the business and does that job qualify as an independent contractor job?

Are you the cashier in his shop? Doesn't qualify.

Do you do the bookkeeping whenever you want to and on a computer different from the business computer? Probably.

Barbara
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Do you do the bookkeeping whenever you want to and on a computer different from the business computer? Probably.


That's what I do. I do all the books, banking, invoicing, contracts and proposals. I do it on my schedule whenever I want and have no management or direction from DH. He is a General Contractor, and I manage the business end. I put significant hours into the business and can track that if necessary.

I do believe that what I do is billable as he would have to pay someone else to do it if I didn't do it.
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Depending on your relative incomes, you might get a little SS tax savings, but your spouse's business would still have to pay SS on your wages, even if you are over the SS limit.


Thanks. Even if he has to pay the business half of the FICA, that would still save us the other half that he'd be paying if he kept all the wages. Sounds like I should do some more digging.
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Even if he has to pay the business half of the FICA, that would still save us the other half that he'd be paying if he kept all the wages.

What happens if you'll top out on FICA in your regular job ?

rad
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What happens if you'll top out on FICA in your regular job ?


I do top out in my regular job, so I wouldn't owe my portion of FICA on any money I earn by working for DH. But DH would still owe the employer's portion of FICA regardless of if I have topped out personally. So instead of being able to save the whole 15% of FICA as I had thought, we would only be able to save half of that, but it's still money that would stay in our pocket.

And if someone has 2 jobs for which FICA is being withheld and tops out on one job, the other job must still withhold the FICA, so you end up getting the excess back when taxes are filed. We're in that position this year as I topped out back in March because I sold some stock options, and my employer withheld FICA as is required. But then I switched jobs, so I've been paying FICA all year anythow, and will be able to claim back that excess on my taxes, but my employer's portion will remain in the system.
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I do top out in my regular job, so I wouldn't owe my portion of FICA on any money I earn by working for DH. But DH would still owe the employer's portion of FICA regardless of if I have topped out personally.

The employer half of FICA has no cap? Are you serious?

-Ortman
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The employer half of FICA has no cap? Are you serious?


I believe that FICA does have a limit for the employer, but the problem is that the employer cannot know how much FICA has been paid by another employer, and so is on the hook for the whole thing. So if I work at Job A and max out my FICA, then quit and move on to Job B, my FICA deductions start again. Therefore, Employer A has paid FICA on my wages to my limit, but Employer B has also paid FICA on my wages even though they are beyond the limit. As the employee, I can get back the excess FICA when I file my income taxes, but Employer B is out the taxes that he has paid on my wages.

So effectively, the government seems to get to double dip in this instance.

At least that's how it reads to me in all the docs I've been reading.
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I believe that FICA does have a limit for the employer, but the problem is that the employer cannot know how much FICA has been paid by another employer, and so is on the hook for the whole thing. So if I work at Job A and max out my FICA, then quit and move on to Job B, my FICA deductions start again. Therefore, Employer A has paid FICA on my wages to my limit, but Employer B has also paid FICA on my wages even though they are beyond the limit. As the employee, I can get back the excess FICA when I file my income taxes, but Employer B is out the taxes that he has paid on my wages.

So effectively, the government seems to get to double dip in this instance.

At least that's how it reads to me in all the docs I've been reading.

You are absolutely correct in your reading. There is a limit for the employer equal to the amount of the employee; but that limit is for each employer for each employee in each year. If the employee have more than one job in a year, each employer must pay up to the limit.

IMMO, they should do away with the limit all together and that should take care of Social Security Trust Fund. If it is too much money, then perhaps except certain amount that way low income people would save even more in their taxes.

RPons
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So effectively, the government seems to get to double dip in this instance.

At least that's how it reads to me in all the docs I've been reading.


Yowza ! So if I need to hire raw labor, it'll be my son and not my husband :)

rad
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Hi RPons,

IMMO, they should do away with the limit all together and that should take care of Social Security Trust Fund.

You do realize, of course, that the ensuing increase in the cost of employment will have an equivalent DECREASE in the volume of employment.

In other words, the more expensive you make it for an employer (me, for instance) to hire humans (especially Americans,) the more incented I am to find alternative (cheaper, non-human, non-American) sources & solutions.

THEN, more Americans are lining up for MORE handouts, with LESS employers contributing.

Not the solution we want, I'd suggest.

Cheers,
Dave
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You do realize, of course, that the ensuing increase in the cost of employment will have an equivalent DECREASE in the volume of employment.

In other words, the more expensive you make it for an employer (me, for instance) to hire humans (especially Americans,) the more incented I am to find alternative (cheaper, non-human, non-American) sources & solutions.

Hi Dave,

I understand what you ae saying, but is the limit is repelled and you get, for instance, an exception in the first 10K of salary for each employee; must companies would come out ahead. And it would become a more fair tax.

RPons
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So effectively, the government seems to get to double dip in this instance.

Damn, as if I needed ANOTHER reason to hate the social security system. Grrrr.....

-Ortman
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Hi RPons,

I understand what you ae saying, but is the limit is repelled and you get, for instance, an exception in the first 10K of salary for each employee; must companies would come out ahead. And it would become a more fair tax.

If we're seeking fairness, then let's blow back the smoke & mirrors, and eliminate ALL hidden income taxes from the employees (which is what employer contributions are... taxation on the employee cloaked as coming from the employers' salary budget.

Employer contributions are a direct variable pressure placed on employers to AVOID hiring Americans, and hurt most the people they're theoretically supposed to be helping; The employee... and an INDIRECT subsidization of human-replacement technology, and labor exportation... all because the legislators desire to "bootleg a quick one" past the employees that are actually paying the tax.

If we want everyone to win, we have to stop trying to "slip a quick one" by the people who are ultimately carrying the load.

Cheers,
Dave
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