California Business Portal

Do I have to report and pay taxes on family members who work for me?

All family employees’ wages are reportable as California Personal Income Tax (PIT) wages and subject to PIT withholding. However, the following family employees’ wages are not subject to Unemployment Insurance (UI), Employment Training Tax (ETT), and State Disability Insurance (SDI):
  • Child under 18 employed by parent or partnership consisting only of parents. “Child” includes adopted children but does not include stepchildren or foster children.
  • Individual employed by spouse or registered domestic partner.
  • Parent employed by son or daughter. “Parent” includes adoptive parents but does not include stepparents or foster parents.
Examples:
  • Karen owns a bakery and hires her 16-year-old son Jordan and 18-year-old daughter Victoria to work in the business. Since he is under 18, Jordan is an excluded family employee and his wages are not subject to UI, ETT, and SDI. Since Victoria is 18, she is not an excluded family employee and her wages are subject to UI, ETT, and SDI. Both children’s wages are subject to PIT.
  • Mark and Irene, husband and wife, co-own a pizza parlor. They hire Irene’s 17-year-old son Chris (from her first marriage) to work in the business. Because one of the partners (Mark) is not his natural or adopted parent, Chris is not an excluded family employee and his wages are subject to UI, ETT, SDI, and PIT.
  • Clay and Jeanette own all the stock in KCK Corporation. They hire their children, all under 18, to work for KCK. Since the children are employed by a corporation, they are not family employees and their wages are subject to UI, ETT, SDI, and PIT.
  • Gordon and his daughter Flo are partners in a dental practice. They hire Marilyn (Gordon’s wife and Flo’s mother) as their bookkeeper. Since Marilyn is working for a partnership consisting only of her spouse and her daughter, she is an excluded family employee and is subject only to PIT.
For more information, refer to the Information Sheet: Family Employment (DE 231FAM): http://edd.ca.gov/pdf_pub_ctr/de231fam.pdf .

The EDD and IRS have different rules regarding family employment. See “Family Help” on the IRS website. For California rules, refer to the Information Sheet: Family Employment (DE 231FAM): http://www.edd.ca.gov/pdf_pub_ctr/de231fam.pdf

Some types of employment (for example, agricultural and household employment) are not subject to PIT withholding, though the wages may be reportable as PIT wages, refer to the Information Sheet: Types of Employment (DE 231TE): http://edd.ca.gov/pdf_pub_ctr/de231te.pdf

Excluded family employees may apply for SDI elective coverage on the Application for Elective Coverage by Disability Insurance (DE 1378J); for information about elective coverage, refer to Information Sheet: Specialized Coverage (DE 231SC). http://www.edd.ca.gov/pdf_pub_ctr/de231sc.pdf

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