If I help my wife in her childcare business can she pay me $1 in wages and cover my health care co

WilliamP

If I help my wife in her childcare business and she pays me $1 in wages and covers my health care costs, is this allowable by the IRS?

rachels

Hi WilliamP,

I answered this question from the other side of the coin that you asked in the discussion, "If my wife helps me with our real estate properties, can I cover her health care costs?" I will refer you to that answer, as it applies in this situation, as well. This is that information:

You will want to be careful with something like this. The IRS has guidelines about who qualifies as an employee. If you try to claim her as an employee when she is not actually considered one, you could potentially be hit with penalties.

The IRS states:

"A spouse is considered an employee if there is an employer/employee type of relationship, for example, the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse. If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding. However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists and the business's income should be reported on Form 1065, U.S. Return of Partnership Income."

https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business

If you scroll down a little in Publication 15, you will see the "Who Are Employees?" heading, which can also be useful.

If you choose to pursue this, make sure to look into the rules for providing benefits for employees. You can view information on that in Publication 15b. You may also want to view this IRS Q&A about informational reporting requirements.

WilliamP

Thanks RachelS