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25. Benefits of Hiring A Spouse as An Employee - Part 1

Updated: May 13, 2022

Unfortunately, you may have been forced 10 lay off or furlough workers during the pandemic, but now you're short-staffed.

Strategy: Hire your spouse, especially if he or she is already pitching in. Make them an official company employee, with all that, entails, including filing the proper paperwork with the IRS.

Of course, your spouse will owe income and payroll taxes on wages, just like any other new hire, but he or she can also pocket company benefits, subject to tax-law eligibility rules.

Here are four ways to sweeten the pot.

I. Build a retirement nest egg.

As long as certain requirements are met, an employee-spouse can participate in the company's qualified retirement plan while the employer is able to deduct contributions made to the plan on his or her behalf.

For instance, if your company has a 401(k), your spouse can elect to defer up to

$19,500 of wages in 2021 ($26,000 if age 50 or over), in addition to any matching contributions by the company.

Contributions grow within the account on a tax-deferred basis.

2. Squeeze more tax mileage from biz travel.

Generally, you can't deduct travel expenses attributable to a spouse when he or she accompanies you on a business excursion.

However, if your spouse is a bona fide employee of the company and is going along for a valid business reason, the travel costs—including airfare, lodging, and 100% of the cost of meals (reverting to 50% after 2022)—are deductible.

The benefit is tax-free to your employee-spouse.

These perks are particularly advantageous when the business entity is a C corporation.

Idea: Set up a cafeteria plan offering a variety of fringe benefits. As a result, your spouse and employees only take advantage of those benefits they choose.

Tip: Some benefits provided to S corporation employees who are also more-than-2% share-

holders and their spouses are taxable. Consult your tax pro for details.

Tax Preparation, Payroll, Accounting, Tax Planning Call us at (800) 913-0809 or send an SMS (224) 676-3577 if you have any questions.

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