Taxes are levied on every business. A husband and wife business has different family business tax requirements from a normal business. Here are some family business tax rules which are applied when the employees are family members:

Employer/employee relationship between husband and wife

There are two scenarios in this case:

  1. One spouse is the employer and other working under him as an employee

If one of the spouse is the manager or owner of the business and the other is under his direction working as an employee than the spouse is your employee, not your partner. The employer must pay Social Security and Medicare taxes for him or her. 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.

  1. Both spouse have equal say in the business and work as partners

If both the partners have an equal say in the affairs of the husband and wife business, such as:

  1. Both have similar responsibilities
  2. Both provides substantially equal services to the business
  3. Both contribute capital to the business

In this case a partnership relationship exists between them, the law states that a partnership type of relationship exists and the business’s income should be reported on Form 1065 known as U.S. Return of Partnership Income.

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