LLC and wage question

[jklcpa]

LLC is owned by 2 brothers, each brother owning 50%. LLC is taxed as a partnership, and the income is considered self-employment income of the owners. One of the wives is on the payroll of this company. Her wages are included in all the payroll filings and she receives a W-2 each year.

This company was randomly selected for audit by the Del Dept of Labor. Their only finding was to say that wife is not employed by the company. The dept adjusted the state unemployment filings by removing her wages. They cited Del law Title 19, sec 3302 11(C ). Sec 3302 pertains to unemployment compensation and 11 is part of the definitions. It is as follows:

11 - "Employment" does not include:

( C) Service performed by an individual in the employ of the individual's child or spouse and service performed by a child under the age of 18 in the employ of the child's father or mother.

What am I missing? Is she not considered an employee of this company?

[Lynn EA USTCP in Louisiana]

LLC is owned by 2 brothers, each brother owning 50%. LLC is taxed as a partnership, and the income is considered self-employment income of the owners. One of the wives is on the payroll of this company. Her wages are included in all the payroll filings and she receives a W-2 each year.

This company was randomly selected for audit by the Del Dept of Labor. Their only finding was to say that wife is not employed by the company. The dept adjusted the state unemployment filings by removing her wages. They cited Del law Title 19, sec 3302 11(C ). Sec 3302 pertains to unemployment compensation and 11 is part of the definitions. It is as follows:

11 - "Employment" does not include:

( C) Service performed by an individual in the employ of the individual's child or spouse and service performed by a child under the age of 18 in the employ of the child's father or mother.

What am I missing? Is she not considered an employee of this company?

She IS an employee, for all BUT unemployment purposes. Weren't her wages shown an exempt on the 940? Or was a 940 not even filed? In many states, the spouse of a schedule C owner, and apparently in your state the spouse of a partner, is exempt from state unemployment.

Lynn Jacobs, EA, FNTPI, NP

Kenner, La

[Maribeth]

LLC is owned by 2 brothers, each brother owning 50%. LLC is taxed as a partnership, and the income is considered self-employment income of the owners. One of the wives is on the payroll of this company. Her wages are included in all the payroll filings and she receives a W-2 each year.

This company was randomly selected for audit by the Del Dept of Labor. Their only finding was to say that wife is not employed by the company. The dept adjusted the state unemployment filings by removing her wages. They cited Del law Title 19, sec 3302 11(C ). Sec 3302 pertains to unemployment compensation and 11 is part of the definitions. It is as follows:

11 - "Employment" does not include:

( C) Service performed by an individual in the employ of the individual's child or spouse and service performed by a child under the age of 18 in the employ of the child's father or mother.

What am I missing? Is she not considered an employee of this company?

It appears that for your state purposes the wife is not covered under unemployment. That is a state law, not a federal law. She would be covered under filing for 941 and for 940 but not for your SUTA.

If the client wishes to have her covered under SUTA, you might check your state law to see if she can "elect-in" to SUTA. My state has this election for small family-owned corporations.

Maribeth

[jklcpa]

Yes, I know she is an employee, and she would not be exempt from FICA or FUTA because to be exempt, the family member would have to the family relationship with all owners of the partnership (as in a child employed by a ptnship owned by father & mother), which clearly she isn't the spouse of both owners.

My problem right now is that Blue Cross of Delaware will only accept the state unemployment reports as proof of employment for her to be considered an employee of the company, even though in their correspondence they indicated that they would accept other documents such as 941s, w-2s, individual tax return and payroll registers. All of those were supplied to them and rejected! So I am going to attach a report showing all the wages paid, including the wife's, and then a line of subtraction stating that her wages are "exempt" from SUTA.