Hiring Your Wife or Husband... There Are More Benefits Than You Might Expect

There are many reasons that you might consider hiring your spouse to work in your practice. Not only does it fill basic staffing needs, but hiring your spouse can also provide a variety of financial benefits for you and your practice. It’s always a good idea to speak with your financial advisor and your tax planner before making any major decisions. Depending on the type of entity that your practice was set up as, some of these may not be available to you, but here is a list of 9 potential benefits to consider.

9 Benefits to Hiring Your Spouse

#1 – Maximize retirement benefits

One of the greatest benefits of putting your spouse on your practice’s payroll is that you can maximize your retirement benefits. As of 2019, employees can contribute up to $19,000 into their 401(k) plans or up to $25,000 if they are over the age of fifty.

For example, let’s say you make $100,000 a year in income from your practice, and you contribute $25,000 (assuming you’re over the age of 50) into your 401(k). Through profit sharing, a Safe Harbor Match, or a pure match, your practice matches your contribution of $25,000. Therefore, you have a total of $50,000 going into your 401(k) each year.

Yet, what happens if you hire your spouse as an employee and add them to the payroll? You don’t need more than $100,000 coming home, so let’s split your income. In our example, we’ll pay you $70,000, and we’ll pay your spouse $30,000. Now, each of you can contribute $25,000 into your 401(k) retirement accounts.

To keep it simple, we’ll keep the practice's match at $25,000, but we’ll split it between you and your spouse. As a result, you receive $17,500, and your spouse gets $7,500 of 401(k) matching funds from your practice. If you add all of that together, a total of $75,000 goes into your 401(k) accounts. That’s $25,000 more than you could contribute on your own! 

#2 – Health insurance benefits

Another reason you may want to add your spouse to your practice’s payroll is for health insurance benefits. You can add your spouse to your health insurance plan as a dependent, so your spouse doesn’t necessarily need their own plan. However, some health insurance plans offer cheaper premiums if your spouse is listed as an employee instead of a dependent. 

#3 – Health Reimbursement Account (HRA) benefits

Besides lower health insurance premiums, you could also receive Health Reimbursement Account (HRA) benefits if your spouse is on the payroll AND if you operate the practice as a sole proprietorship or a C Corporation. If your practice is one of those entities, it can reimburse you and your employed spouse for all of your out-of-pocket medical expenses and health insurance premiums. Then, the practice can claim all of those reimbursements as business tax deductions! That’s a win-win in my book.

However, there are some basic rules you need to know about with an HRA:

• You need a health insurance plan to participate.
• The business owns the HRA.
• Only the business can put money into an HRA because the HRA is a business asset.
• The business determines how much money is contributed to the HRA and keeps any unused dollars in the account.
• You can use the money in the account to pay for your family’s medical expenses as long as they are recognized by IRS Publication 502.
• The HRA does not earn interest. 

#4 – Social Security benefits

To max out your Social Security benefits, you would need to bring home approximately $129,000 annually from your practice. If you push $130,000 for 10 years, then you’re fully qualified, or fully insured, and your non-working spouse is then eligible for 50% of the working spouse’s benefits. That’s pretty amazing, and most people don’t realize that a non-working spouse is eligible for 50% of the working spouse’s Social Security Benefits. 

However, there are strategies to maximize your Social Security benefits and your spouse’s. With the help of tax consultants and planners, you may be able to shift your income and duties to your spouse after a ten year period and let your spouse maximize Social Security credits for ten years. This gets very complicated, so be sure to seek professional guidance before you employ any Social Security strategies.

#5 – Travel expense benefits

If you travel for work, you can bring your spouse with you. Of course, you have to have legitimate reasons to bring your spouse with you. However, if your spouse travels as your chauffeur, your assistant, your scheduler, or the like, you may be able to deduct your travel expenses and your spouse’s expenses from your tax liabilities. That benefits both you and your practice. 

#6 – Group disability insurance benefits

Many times, non-working spouses are not insured under disability policies. Yet, if you hire your spouse, you can now get disability benefits for them. Obviously, you hope your spouse never needs those benefits, but if your spouse legitimately works for the company, then he or she can receive the benefits if needed.

#7 – Vehicle payment benefits

Another benefit of hiring your spouse as an employee in your practice is that you can potentially buy a third vehicle for your spouse as part of their job duties. You probably have a vehicle for you, and most likely, it’s a business expense. Then, at home, you have a family car. But if your spouse is an employee, you could purchase a third vehicle that is used for business purposes, creating another deductible business expense.

#8 – Reduce the company’s taxable income

If your practice operates as a C Corporation, you fall under double taxation, where your income is taxed at the corporate level and on a personal level. By hiring your spouse, you can lower your taxable income and reduce some of the taxes that are double taxed. Obviously, that’s a benefit to you and your practice. Keep in mind that if your spouse also has a “9-5 job” you should watch for any salary increases or bonuses as they might have negative tax ramifications.

#9 – Education benefits

Finally, you could send your spouse back to school and deduct the education expenses from your taxable income. However, if you do this, be sure you’re sending your spouse to school to improve the job skills they are using within your company. If your spouse does bookkeeping work for your business, don’t send them to school for a degree in theater arts. Be smart, friends.

The Correct Way to Employ Your Spouse 

Hiring your spouse as an employee can offer you and your family many benefits – financial and otherwise. However, you need to understand that we’re not telling you to put your spouse on your practice’s payroll just to make more money. If you hire your spouse, they MUST have a legitimate job within the company just like any other employee. You are not trying to “trick” the government and give your spouse money from your practice for no reason. That’s ridiculous AND it’s dishonest. If you’re going to pay your spouse, they must be legitimate employees.

6 Requirements For Hiring a Spouse:

1. They must have a job description and an appropriate income for that job description.
2. Your spouse must complete all the new hire forms just like any other employee.
3. You must make all the required payroll deductions and withholdings for your spouse.
4. You must include your spouse in all the benefit programs your practice offers to employees.
5. You must be able to prove that your spouse is actually doing the work.
6. Finally, you must keep your spouse’s salaried duties separate from ownership duties.

What This Means for You… 

The goal of this article is to give you ideas that might work for you and your practice. However, you should talk to your CPA or your tax advisor before you put any of these ideas into practice. We do our best to give you ideas that are legitimate in every state, but there may be state-specific laws or rules that we are not aware of. If your CPA doesn’t offer you ideas like hiring a spouse, employing your children, etc., reach out to us. We work with forward-thinking CPAs all over the country whom we know and trust. We can put you in touch with one of them.

If you have questions about hiring or other business strategies, schedule a call. We would love for you to stop into our office or have a Zoom meeting with you at your convenience.