A reader asks: I have a sole proprietorship and employ my spouse and pay futa tax on him. However I was recently told that I must exempt him from futa- I thought I as the owner was exempt but it was optional for the spouse- thus him being able to benefit from unemployment should the business fail. I additionally was told that if I were a corporation he would not be exempt. Do you know if I can still pay futa on him and have him be eligible for unemployment?
My answer: The following quote is from IRS Publication 15:
“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.”
My understanding is that, if the business were a corporation (or an LLC electing to be taxed as a corporation), each spouse would be an employee of the corporation rather than of the other spouse. As such, I believe that both spouses would be subject to FUTA.
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