Question

kathy, a sole proprietor, owns and operates a grocery store. kathy's spouse and her 16-year-old daughter work in the business and are paid wages. will her spouse and daughter be subject to fica? both her spouse and daughter are exempt.

Answer 1

The FICA tax status of family members working in a sole proprietorship depends on specific conditions; in Kathy's scenario, her spouse and daughter working in her grocery store are not automatically exempt from FICA taxes.

Step-by-step explanation:

Kathy, a sole proprietor who operates a grocery store, has inquired about whether her spouse and 16-year-old daughter will be subject to Federal Insurance Contributions Act (FICA) taxes when they receive wages for working in the business.

Under the FICA rules, wages paid to a child under the age of 18 by a parent in a sole proprietorship or a partnership where the only partners are parents of the child are generally except from Social Security and Medicare taxes.

Additionally, wages paid to a spouse are not subject to FICA provided the services are not in the course of the employer's trade or business, or if it is domestic service in a private home of the employer. However, in this case where the spouse and child work in a grocery store, a trade or business, these exemptions may not apply, so Kathy's spouse and daughter are not necessarily exempt from FICA taxes.