One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may vary from those that apply to other employees. The following information may assist you by pointing out some differences to consider. • Child Employed by Parents Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the "Covered services of a child" section below. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payment for the services of a child are subject to income tax withholding regardless of age. • Covered Services of a Child The wages for the services of a child are subject to income tax withholding as well as Social Security, Medicare, and FUTA taxes if he or she works for: * A corporation, even if it is controlled by the child's parent; * A partnership, even if the child's parent is a partner unless each partner is a parent of the child; or * An estate, even if it is the estate of a deceased parent. We would like your feedback on this Personal Finance Frequently Asked Question.

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