Spouse as Employee

Today TaxMama hears from Russel in the TaxQuips Forum who wants clarification. “At the end of the show on KFWB 980 today (10/31) Bob McCormick asked you a question regarding small businesses employing spouses.  I missed the answer.  If a spouse is employed by a sole proprietorship do you have to carry workman’s comp insurance?  And what frequency does the spouse need to be paid?”  


Hi Russel, 

Thanks for asking.  

Workers comp rules depend on the state laws. But if you were listening here in good ‘ole So Cal… California allows owners and spouses to opt out of workers compensation coverage.

Before you do that, think about the cost, and what you’re giving up, in case anything happens to your wife. Also, did you know that OWNERS may buy California state disability coverage? If you cannot get disability insurance elsewhere, consider this option.

How often must you pay your wife? As often as is appropriate.  Weekly, monthly, quarterly, annually… However, it must be a paycheck. The paycheck must be deposited into a separate account – not the business account.

There are a variety of benefits the business may deduct when you hire a spouse or child. Read Chapter 10 of Small Business Taxes Made Easy for some solid, money-saving ideas – and rules to protect you when you put your family on the payroll.

And remember, you can find answers to all kinds of questions about hiring family and other tax issues, free. Where? Where else? At www.TaxMama.com.

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