Paying wages to a spouse

by Laurie
(PA)

Is it as difficult to pay wages to only one employee...i.e. a spouse, as it is to pay wages to non-family members. For several reasons, we are considering changing from a multi-member (husband and wife) LLC partnership, to a single member LLC with spouse as employee. This would enable us to get one "family " health insurance policy with only one deductible and one out of pocket maximum. THis would also enable us to utilize an HRA, and thereby get reimbursed by the business (i.e. business expense) for healthcare premiums (not subject to the 7.5% rule).

However, I am concerned about
1. The admin nightmare involved in the employee wages
2. the corporate veil being pierced.

Can you provide your thoughts.

Answer

Starting with the second half of your question...I don't see a problem with your corporate veil at all.

Paying a spouse is perfectly acceptable if your spouse is actually performing functions for the company and is being paid a reasonable, market wage based on his/her experience, efforts, job function, etc.

Paying an employee does complicate things, no question.

Employers are the "unpaid" tax collectors in our society. Not only are they unpaid, but they are severely penalized for making mistakes.

Therefore, you should hire a payroll service to do your payroll for you.

Quickbooks has basic payroll services for small businesses with fewer than 3 employees at reasonable rates.