Quite often a spouse and children can be gainfully employed in a business. This can help reduce the overall tax due on the business profits and at the same time retaining the same income with less tax payable within the family.
There are both Income Tax and PRSI implications involved where family members are employed in the business, which we explain below first of all in respect of spouses and then children.
Spouses
A spouse could be either employed in the business or made a partner in the business with you. This would give them an income, which of course is taxable. However since the introduction of individualisation a spouse can earn income up to €44,000 for 2026 and only pay tax thereon at the 20% tax rate.
Example:
Spouse:
Salary for previously unpaid spouse €33,000
Tax at 20% = 6,600
Less PAYE Tax credit 2,000
Tax due = 4,600
USC 792
PRSI Class S applies 1,353
Total Tax, USC & PRSI due = 6,745
Net Payment to Spouse = €26,255
Business:
Paid out = €33,000
*Tax Relief for Business Owning Spouse 17,160
Net Cost for Business Owning Spouse = 15,840
Cash received by Spouse = 26,255
Cash & Tax saving = €10,415
*Assumes top tax rates apply, tax relief arising from reduction in business earnings.
Generally speaking a persons spouse is nearly always involved in some shape or form in the running of a small business so there should be no difficulty in justifying a salary payment for income tax purposes. For PRSI purposes a person who is directly employed by their spouse is usually not considered to be in insurable employment so no Employers PRSI payments are due in that case (not guaranteed).
Taking your spouse in as a partner in a sole trader business has various tax implications as you are treated as starting a new business in partnership which requires new tax registrations etc etc and should not be done without taking professional advice. We can provide this advice which will be subject to an extra charge.
TAX SAVING TIP
A tax saving of €10,415 approximately per annum can be achieved by employing your spouse in the running of your business or by making them a partner in the business with you.
Children
Some businesses lend themselves better than others to employing young children of the owner in carrying out genuine work for the business e.g. small supermarket stacking shelves, shops etc. In other cases it is not unusual to find that children are more technologically advanced than their parents and will often provide assistance to parents who work from home in dealing with computers, emails, typing etc.
Once a child performs a genuine task for the business and is paid a normal salary then that salary cost qualifies as a normal taxdeductible expense for the parents business. The child can then use this money as they see fit e.g. educational expenses, holidays, pocket money etc.
A child can earn up to €20,000 per annum free of tax for the year 2026 if they work full time in the business. Assuming your child provides genuine assistance to you in running your business on a part time basis you could pay them €385 per week free of tax.
Example:
Child:
Salary for child of €385 per week = 20,000
Tax at 20% = 4,000
Less Tax credits 4,000
Tax due = 0
USC 272
PRSI Weekly 385 * 4.10% = 16 – Credit 6, Due 10 X 52 = 535
Total Tax, USC & PRSI due = 807
Net Payment to Child = 19,193
Business
Paid out = 20,000
Employer PRSI = 1,780
Total Cost = 21,780
*Tax Relief for Business 11,326
Net Cost for Business = 8,674
Cash received by Child= 19,193
Cash & Tax saving = €10,519
*Assumes top tax rates apply
No PRSI charges are due if the child is under 16 years of age or if over 16 carries out the work at home where the business is carried on, in most cases. The childs salary will be liable for the USC charge but at the lower rates.
TAX SAVING TIP
A child may be employed part time in the business and could earn up to €385 tax free.
