Tax incentives for employing a spouse
A common approach used by many business owners is to hire their spouse as an official employee. Hiring your spouse as an official employee can have some disadvantages; however, there are least six tax benefits you can receive from taking this approach.
The following tax benefits may be applicable to you:
1. Retirement plan contributions deduction in the full amount. Within generous limits and if all tax law requirements have been met, contributions made on behalf of your spouse can be deducted by the company.
2. Taking a salary. If you are operating a C Corporation, any wages you pay to your spouse would have stayed with the company. Assuming your corporation is in a higher tax bracket than your personal tax bracket, you will save tax overall if your spouse draws a salary.
3. “Back to school” advantages. Education expenses acquired to improve an employee’s job skills are deductible by the company and tax-free to the employee. Therefore, your company can plan to send your spouse “back to school” on either a part-time or a full-time basis.
4. Travel expenses. In general, you cannot deduct the travel expenses attributable to your spouse if he or she accompanies you on a business trip. On the other hand, if your spouse is an authenticated company employee and is going for a valid business reason, his or her travel costs — including airfare, lodging and 50% of meal expenses — may be deducted.
5. Health insurance coverage. If you are currently paying more to cover your spouse under your company health insurance plan, hiring your spouse shifts the expense to your company. Typically, your company can deduct the full cost of the health insurance paid for your spouse, just as it can for other employees.
6. Other benefits. Similar to health insurance, your spouse is entitled to the same group-term life insurance coverage as other employees in the company. The first $50,000 of employer-paid group-term coverage is tax-free to an employee.
In addition, depending on your form of business, you may also be entitled to new tax breaks for hiring a spouse under the Hiring Incentives for Restoring Employment (HIRE) Act. Hiring your spouse may have other tax-related implications, which is why you should always consult a tax specialist. Seeking advice from a tax accountant professional, like Emil Estafanous, CPA can minimize your taxes. For additional details, please contact the Tax and Accounting office of Certified Public Accountant, Emil Estafanous at 562-868-6333 and his accounting staff will be glad to discuss the particulars of your situation and your no-cost, no-obligation Free Consultation.
Small Business Health Care Tax Credit
Millions of small businesses will receive postcards from the IRS beginning the week of April 19 that alert them to the new Small Business Health Care Tax Credit and encourage them to check their eligibility. Even if you don’t receive a postcard, your business still may be eligible.
Included in the Patient Protection and Affordable Care Act approved by Congress last month and signed into law by President Obama, the credit is one of the first health care reform provisions to go into effect. The credit, which takes effect this year, is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
“We want to make sure small employers across the nation realize that — effective this tax year — they may be eligible for a valuable new tax credit. 
Our postcard mailing — which is targeted at small employers — is intended to get the attention of small employers and encourage them to find out more,” IRS Commissioner Doug Shulman said. “We urge every small employer to take advantage of this credit if they qualify.”
In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees in 2010. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers.
Eligibility Rules
-
Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
-
Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
-
Average annual wage. A qualifying employer must pay average annual wages below $50,000.
-
Both taxable (for profit) and tax-exempt firms qualify.
Amount of Credit
-
Maximum Amount. The credit is worth up to 35 percent of a small business’ premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).
-
Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.
Three Simple Steps for Employers to Qualify
To determine if your small business or tax exempt organization qualifies for the Small Business Health Care Tax Credit, follow the three simple steps on our fact sheet.
