Beginning in 2009, single-member limited liability companies (LLCs) and other disregarded entities that didn’t elect to be treated as corporations for federal payroll tax purposes were automatically treated as corporations. Upshot: This change to corporate status for payroll purposes wiped out the FICA/FUTA exemptions for employing family members and members of religious orders.
Now, final and temporary regulations have restored those exemptions. The regs became effective Nov. 1, 2011, but you may apply them to wages paid beginning Jan. 1, 2009. (76 F.R. 67363, 11-1-11)
The law of unintended consequences. Corporations can’t take advantage of the FICA/FUTA exemptions for employing family members or members of religious organizations. And therein lies the problem for disregarded entities, which are disregarded only for payroll tax purposes. The regs restore these FICA/FUTA exemptions:
- Children under age 18 who work for their parents’ business, and children under age 21 who work for their parents, but not for their parents’ trade or business (e.g., they work in domestic service in their home), are exempt from FICA.
- Regardless of the job, children under age 21 who work for their parents are exempt from FUTA.
- Spouses who work for their spouse’s business are exempt from FUTA. Spouses who work for their spouse, but not for their spouse’s business, are exempt from FICA and FUTA (e.g., they work in domestic service in their home).
- Parents who work for their children aren’t subject to FUTA. Parents who work for their children, but not in their children’s business, are exempt from FICA and FUTA.
- Members of religious orders who work for other members are exempt from FICA.
Backup withholding. The regs also clarify that, with the exception of qualified Subchapter S subsidiaries, owners of the disregarded entities are responsible for backup withholding and filing Forms 1099-MISC.
Like what you've read? ...Republish it and share great business tips!
Attention: Readers, Publishers, Editors, Bloggers, Media, Webmasters and more...
We believe great content should be read and passed around. After all, knowledge IS power. And good business can become great with the right information at their fingertips. If you'd like to share any of the insightful articles on BusinessManagementDaily.com, you may republish or syndicate it without charge.
The only thing we ask is that you keep the article exactly as it was written and formatted. You also need to include an attribution statement and link to the article.
" This information is proudly provided by Business Management Daily.com: http://www.businessmanagementdaily.com/29264/regs-restore-ficafuta-family-employment-exemptions "
- Pay Statements: 50 State Laws
- Don't let year-end duties ruin your Thanksgiving dinner
- Under PTO policy, must we pay out unused leave upon employee's termination?
- Prepare now for Paid Family Leave Act, taking effect in 2009
- Is it OK for supervisors and employees to use different methods for recording work hours?