SE tax self-employment

[vic]

I have a side-business that is doing not too bad at all. Both me and DH also have a regular cube farm job. I can already see a nice tax bill at the end of the year coming my way and I would like to trim that a little.

I am just under the limit for social security/medicare. DH is above it. Can I employ DH for most of the income and cut out all taxes except for federal tax? Or does the limit for social security/medicare only count for the employee and the employer still has to pay it? I am a sole proprietor (not going to change that) and have a EIN to employ DH if needed. The IRS just send me insane amounts of unsollicited paperwork associated with the EIN and I can't read it all.

I would like to pay DH one check at the end of the year, no other hassles.

Does it work that way and how much of a hassle is it?

Vicky

 

[Martha]

I'll just answer one piece of your question because it is Saturday.

The medicare tax doesn't have an upper limit. So you will have to withhold that portion. When an employee maxes out on the social security ($87,900 for 2004) the employer is maxed out too. Edit: But if a person has more than one job, the second employer might still have to withhold and pay into social security, even if the employee maxed out with the first employer. I think the employee then must go for a refund of the overpayment.

 

[WanderALot]

The medicare tax doesn't have an upper limit. So you will have to withhold that portion. When an employee maxes out on the social security ($87,900 for 2004) the employer is maxed out too. Edit: But if a person has more than one job, the second employer might still have to withhold and pay into social security, even if the employee maxed out with the first employer. I think the employee then must go for a refund of the overpayment.

When I switched jobs a few years back I had already maxed out my SS. My second employer continued to take it out and when I filed taxes for the year, TurboTax automatically figured it out and calculated the overpayment.

It seems to me though that my 2nd employer got screwed because they paid SS taxes for me even though my 1st employer had already paid the max for me. So the SS trust fund got the max from me (all from the 1st employer) and then got more than max from my 2 employers. Unless my 2nd employer sound how figured out that my max was already paid by the 1st.

 

[Martha]

As TH would say: ding ding ding, we have a winner!

Yup, as far as I know, the employer does not get its share back, only the employee.

 

[charlie]

Vickey,

It has been a long time since I hired my wife in a side business,
but if I remember correctly, you don't have to pay FICA on a
wife's salary from your business. I don't remember how
that is handled on a 1040. The salary you pay DH will be a
business expense on your Form C, but you have to declare the
income to DH elsewhere. This will have the net effect of reducing
your business income and thus the FICA tax on your earnings.

Of course, the law requires that DH do something to earn the
money.

If DH is not your spouse, forget about it.

I hope somebody will jump in an correct me if I am wrong.

Cheers,

Charlie

 

[uncledrz]

IRS pub. 15 provides:
"One spouse employed by another. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax. However, the services of one spouse employed by another in other than a trade or business, such as domestic service in a private home, are not subject to social security, Medicare, and FUTA taxes."

FUTA is federal unemployment.
Sorry.
Uncledrz

 

[eridanus]

Hire DH as a 1099 and don't worry about it. Make him worry about it.

 

[vic]

Got it finally figured out. Talked to the tax-man. The regular service reps could not figure this out but finally got some tax superman on the phone.

If I pay DH as an employee, I got to pay SS and Medicare on all income that he has. No 90K limit for me even though he is maxed out with his employer. DH does get his SS share back from the taxman.

If DH works as a contractor and I file a 1099, we can get around the extra SS payment. However, then there is the burden of proof of showing that he is not an employee but a real contractor. With the spouse relationship, this is very unlikely.

If DH runs the business, we can avoid all extra paperwork and he will be exempt from SS over 90K. This will save us thousands of $$$. Of course tax superman did not like to confirm this. But this seems the easiest and cheapest thing to do. As of Jan 1, I donated the whole thing to DH. Seems it is ok to do a gift and the assets/inventory is just about nothing anyway.

A couple of months ago I applied for an EIN. The IRS keeps on sending me atons of bulletins and paperwork and coupons that I really don't want to keep up with. I put them all in a drawer and now in the trash

Vicky

 

[Mr._johngalt]

Got it finally figured out. Talked to the tax-man. The regular service reps could not figure this out but finally got some tax superman on the phone.

If I pay DH as an employee, I got to pay SS and Medicare on all income that he has. No 90K limit for me even though he is maxed out with his employer. DH does get his SS share back from the taxman.

If DH works as a contractor and I file a 1099, we can get around the extra SS  payment. However, then there is the burden of proof of showing that he is not an employee but a real contractor. With the spouse relationship, this is very unlikely.

If DH runs the business, we can avoid all extra paperwork and he will be exempt from SS over 90K. This will save us thousands of $$$. Of course tax superman did not like to confirm this. But this seems the easiest and cheapest thing to do. As of Jan 1, I donated the whole thing to DH. Seems it is ok to do a gift and the assets/inventory is just about nothing anyway.

A couple of months ago I applied for an EIN. The IRS keeps on sending me atons of bulletins and paperwork and coupons that I really don't want to keep up with. I put them all in a drawer and now in the trash 

Vicky

My advice is to stay legal, but keep as far away from the IRS as possible.
(Low profile)

JG