I’ve never employed my wife in a formal sense. Won’t a MERP mean a much higher overhead, paperwork and complication for our simple business, which has never had any employees before? Also, wouldn’t Administrative Fees offset any tax savings we might have? : FAQ/Blog/Solutions
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I’ve never employed my wife in a formal sense. Won’t a MERP mean a much higher overhead, paperwork and complication for our simple business, which has never had any employees before? Also, wouldn’t Administrative Fees offset any tax savings we might have?

by Tom Luker on 05/01/15

It might seem to be, or start out to be more complicated, but soon will become routine, even if you are making W-2 wages in a monthly or quarterly mode. As your tax professional will inform you, you’ll be filing a Form 941/943 each quarter of compensation.

  • Some of our clients are making spousal wage payments in just one quarter, such as in December. In this case, the IRS has recognized such a method and has provided Form 944 for a one-time submission.
  • This sure makes the one-EE business whose only EE is your loving roommate to be a simple solution.
  • The question of a slightly higher overhead is greatly overcome by $2,000, $3,000, $5,000 or more of tax savings because of the MERP/HRA, translating to a lower profit on your Schedule C but giving you more spendable/investable income for the sole proprietor family.
  • In these cases it is actually a real advantage to LOWER your PROFITS on your business tax return!
  • Regarding the comparison of the FAMILY tax-savings with the TPA’s Administrative Fee, consider the following:
    • Assume the business has one EE [the spouse] and the annual TLC fee is $175;
    • In a 25% tax bracket, the medical costs would only have to be $700 to offset the fee;
    • In a 30% bracket, it is only $583;
    • In a 50% bracket, it is only $350;
    • Usually, the medical expenses [and tax savings] would be several times those amounts.
  • Regarding the comparison of the EMPLOYER tax-savings with the TLC Administrative Fee, consider the following:
    • Assume the annual TLC fee for each EE is $50;
    • With no [0%] Workers Comp [WC] or Unemployment Comp [UC] – 7.65% FICA – the medical costs would only have to be $624 to offset the fee;
    • With low WC/UC – 10% FICA/WC/UC, it is only $500;
    • With HIGH WC/UC – 20% FICA/WC/UC, the employee’s medical costs would have to be only $250. Usually, the medical expenses [and tax savings] would be several times those amounts.
  • If you operate a logging or farming biz, the WC costs can be 25% of wages or even more!

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