A unique advantage of a proprietorship is the ability to pay wages to children of the owner without incurring any FICA or FUTA payroll tax liability. Children of the owner under age 18 are exempt from FICA and those under age 21 are exempt from FUTA. The wage deduction may also help the parents reduce or avoid the additional 0.9% Medicare tax that will affect individuals with earned income exceeding certain thresholds in 2013. Because the child's wage income is earned income, some of it can be sheltered by the child's standard deduction ($6,100 for 2013). However, the wages paid to the child must be reasonable in relation to the actual work performed.
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