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Put employment taxes to work for you

by on
in Hiring,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

If you're planning to hire your spouse, he or she (and your company) still must pay federal employment taxes on the wages. But don't let that scare you away from putting your spouse on the payroll. By shifting salary from your pocket to your spouse's pocket, you can successfully pay less in employment taxes than if you earned all the income yourself.


Example: Let's say you normally earn a $95,000 salary from a C corporation. You hire your wife to keep the books and pay her $10,000 this year. She must pay 7.65 percent FICA tax on the first $90,000 of wages and 1.45 percent on any wages above that. So, she must fork over $765 (7.65 percent of $10,000). The company must pay the same amount on her behalf. The combined FICA tax hit is $1,530 ($765 times two).


But say you reduce your own salary by an equal $10,000. That pushes your salary below the $90,000 wage base, saving you and the company a combined total of $910 in FICA tax (7.65 times $5,000 plus 1.45 percent times $5,000 times two). Hiring your spouse costs only $620 more ($1,520 minus $910).

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