LLC Member as Employee

[MJG CPA]

A husband and wife LLC (50/50) with one employee need one of them (wife) to be an employee in order to establish a group health insurance plan. [This is the only way husb & wife can get insurance.] The LLC currently files a partnership return. I know that a member is not supposed to be treated as an employee, but as long as they are not trying to avoid s/e tax and she also treats her pass-thru share of income as self-employment income, does anyone see this as a problem? Would it make a difference if wife only had a minority ownership such as 10% and drew a salary - would this be better or no difference? I don't want her to have 0% interest for continuity purposes.

Appreciate any thoughts/comments.

[MJG CPA]

I decided to call IRS on this issue & thought you may be interested in the response:

As long as the LLC member is withholding social security and medicare on their wages and the proper payroll tax is being paid/reported, they do not care if the member is treated as an employee.

[OldJack]

I agree that although a partner is not supposed to be considered an employee, sometimes it is best and the only good way for the person to have their taxes paid-in since they simply will not do the quarterly estimates. I have even had sole proprietorship clients in the past do W2 payroll withholding.

[mcb39]

Just as Old Jack states; sometimes it is the only way. I have had this scenario often enough to know that the IRS doesn't really care as long as the proper taxes are paid.

[MJG CPA]

Thanks for the feedback - it's good to know.