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How to pay taxes as an independent contractor with a spouse as an employee?

I am classified as an independent contractor  with a company that I work with as a side job and pay self-employment taxes. I live in Texas, so no state income taxes. In the future, my husband will work for me to do some work for the company as well. He will not be classified as employed by the company, but will be my employee. So, work that he does is paid to me as the contract holder and then paid to him for his time worked. How does this work for tax purposes as a couple? Even if he isn't employed by the company and contracts through me (which is allowed by the company), are we able to pay taxes to the IRS as a single entity since we are married?

For example, if he worked 20 hours at 20 dollars an hour pay for 400 dollars, and that money is paid to me as the contract holder, I wasn't sure how to approach that for taxes to reflect that he was the one who worked to earn that specific amount of money. And, if possible, and legal, I didn't want to be taxed once on the money and then him taxed on it again as an employee of mine.

If anyone could shed any light on how to approach this situation or direct me to any resources, it would be greatly appreciated. Thank you!

4 Replies
Level 15

How to pay taxes as an independent contractor with a spouse as an employee?

From a legal standpoint, you don't work as an independent contractor for anyone but yourself. Those you perform a service for, or provide a product to, are you customers. You are in fact, "in business" for yourself, and will file a SCH C which is included with your personal tax return, even if you file a joint return with your husband and he is your employee.
At a minimum, you must use TurboTax Home and Business, and with your husband as an employee of "the company" you own, it's important that you indicate on your tax return that you, and you alone own the business. Since your husband is or will be an employee, do NOT indicate a partnership with him owning a percentage of your company. While you can do that, it really complicates things because for a small business sole proprietorship or married couple partnership, an owner can not be an employee.
Next, when working through TT Home & Biz it will ask if you have employees. You must select that option to indicate that you do. Otherwise, you will not be asked questions pertaining to the employees you paid.
Be aware also, that for your employee, you the employer have to pay 15% of "his" wages, out of "your" profit as the employer's side of Medicare and social security. At a minimum, you will have to pay this to the IRS on a quarterly basis. For most businesses, they have to pay that monthly. Additionally, while your state may not tax income, they "may" impose an Unemployment Compensation tax, referred to as the state UC tax. So check to see if Texas requires that, and what the frequency of payments requirement is.
I would also recommend that you use QuickBooks for your business too. I use it for mine, and it figures paychecks, withholdings, and tax payments due to the IRS as well as the state, for me. With even just one employee, that program is a God send for keeping things on track and mathematically correct. Additionally, at tax time you can "import" your business information, income and expenses directly into the turbotax Home & Business program, if you pay attention to detail when initially setting up QuickBooks for your business.
Finally, if things get to confusing for you, or you're just not comfortable with all this, then I strongly urge you to seek professional help from a licensed CPA in your local jurisdiction. Doing things wrong can be very costly tax-wise, and the late fees, fines and penalties can very easily bankrupt your business before it even gets off the ground. The cost of professional help is dirt cheap, when compared to the fines, penalties and late fees that could be imposed on your business when the IRS catches mistakes on it, usua.ly 18-24 months after you file the return.
Note that if you pay a CPA to help you with this, what you pay them would be deductible either as a business expense, or business startup costs. So again, if you get uncomfortable with this, please seek professional help.
Level 15

How to pay taxes as an independent contractor with a spouse as an employee?

There are several ways to handle it. One way is to treat him as an regular W-2 employee as described in the other answer; along with all the required paper work of being an "employer". Your business will have to get an Employer Identification Number (EIN).

A simpler way is for you to issue a 1099-Misc to your spouse and have him do a separate schedule C & schedule SE, as a separate subcontactor. That way all the expenses go on your schedule C.

A third way is to not issue him a 1099-Misc, but for him to still do a separate schedule C (& schedule SE), with you allocating his share of the income and expenses to him. In other words, instead of treating him as an employee or subcontractor, you treat him as a co-owner of the business. This is how most married couples handle it; unless you feel strongly about it being only  "your business".

As a couple filing a joint return, you are allowed to submit more than one schedule C.  You each check the Qualified Joint Venture (QJV) box.

How to pay taxes as an independent contractor with a spouse as an employee?


How to pay taxes as an independent contractor with a spouse as an employee?


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