Skip to main content

Tax reporting when your spouse works with you

So, as a self employed management consultant, I some times hire my wife to help out.  I do the selling, analysis, and manage the client relationship (project management, presentation, etc.), while she helps with the research and preparation of slide decks.  Until 2021, it was so easy to show her self-employment income because she would have her own Schedule-C in which she would simply declare her income that we had agreed upon.  By the way, I used to simply receive payments from my clients, who I found through a consulting platform.

Starting in 2022, the IRS changed some rules, and that is why I received a Form 1099-NEC with my name and social security number, since I am the one on the platform.  Even though she worked throughout the year, she did not receive (and was not required to receive) her own 1099-NEC.  However, she must be paid and her share of the income should count towards of Social Security credits.

Thankfully, there is a way to do it, though, it took me a lot of research to find out how, since the IRS does not provide clear instructions.  You see, if as a contractor or gig worker, you hire someone else to do the job that you were hired to do (e.g. if you have a contract to plow snow you can hire someone else to plow it on your behalf) or to do something else (e.g. for your snow plowing business, you can hire an accountant), you have to issue a 1099-MISC, but the IRS has a simpler solution for couples who work together in a business.  No need for a lot of paperwork and complicated accounting.

Qualified Joint Venture

This is a very nifty feature of the tax code as part of Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28).  It provides that a "qualified joint venture," whose only members are a married couple filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.  We qualify for this, but since the 1099-NEC was in my name, the way to do this was as follows:

  1. Show the total amount on 1099-NEC on Schedule C Part 1 Income Line 1.
  2. You can then deduct all your other expenses as you normally would.
  3. In Part V Other Expenses, simply write "Qualified joint venture income to spouse" and report the amount that you want your spouse to have.  
  4. My wife then simply reported that exact amount as "other self employment income."