Business Entity Taxation Guide

Reference Guide · Federal · NJ · NY · PA

Business Entity Taxation Guide

Knowing how each business entity is taxed for payroll purposes is half the battle. This guide compiles federal and state-specific rules for owners, spouses, children, and employees across the most common business structures.

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Payroll Tax Reference

How Each Entity Is Taxed

Federal rules are uniform, but state payroll tax treatment varies significantly. Use the filter below to switch state coverage between New Jersey, New York, and Pennsylvania — or view all three at once. Every cell is verified against current IRS, NJDOL, NYSDOL, and PA L&I guidance.

Legend:

TAX Taxable

EXEMPT Not taxable

EX 18 Exempt until age 18

EX 21 Exempt until age 21

NO P/R Not on payroll

SEE NOTE Conditional

Sole Proprietor

Schedule C

	Owner	Spouse	Child	Employee
SS	NO P/R	TAX	EX 18	TAX
MED	NO P/R	TAX	EX 18	TAX
FED	NO P/R	TAX	TAX	TAX
NJ	NO P/R	TAX	TAX	TAX
NJ UI	NO P/R	EXEMPT	EX 18	TAX
NJ DI	NO P/R	EXEMPT	EX 18	TAX
NJ FLI	NO P/R	EXEMPT	EX 18	TAX
NY	NO P/R	TAX	TAX	TAX
NY UI	NO P/R	EXEMPT	EX 21	TAX
NY DBL/PFL	NO P/R	OPT-OUT	TAX	TAX
PA	NO P/R	TAX	TAX	TAX
PA UC	NO P/R	EXEMPT	EX 18	TAX
FUTA	NO P/R	EXEMPT	EX 21	TAX

Partnership

Form 1065

	Owner	Spouse	Child	Employee
SS	NO P/R	TAX	EX 18	TAX
MED	NO P/R	TAX	EX 18	TAX
FED	NO P/R	TAX	TAX	TAX
NJ	NO P/R	TAX	TAX	TAX
NJ UI	NO P/R	EXEMPT	EX 18	TAX
NJ DI	NO P/R	EXEMPT	EX 18	TAX
NJ FLI	NO P/R	EXEMPT	EX 18	TAX
NY	NO P/R	TAX	TAX	TAX
NY UI	NO P/R	TAX	EX 21	TAX
NY DBL/PFL	NO P/R	TAX	TAX	TAX
PA	NO P/R	TAX	TAX	TAX
PA UC	NO P/R	IF ALL	IF ALL	TAX
FUTA	NO P/R	EXEMPT	EX 21	TAX

Single-Member LLC

Schedule C

	Owner	Spouse	Child	Employee
SS	NO P/R	TAX	EX 18	TAX
MED	NO P/R	TAX	EX 18	TAX
FED	NO P/R	TAX	TAX	TAX
NJ	NO P/R	TAX	TAX	TAX
NJ UI	NO P/R	EXEMPT	EX 18	TAX
NJ DI	NO P/R	EXEMPT	EX 18	TAX
NJ FLI	NO P/R	EXEMPT	EX 18	TAX
NY	NO P/R	TAX	TAX	TAX
NY UI	NO P/R	EXEMPT	EX 21	TAX
NY DBL/PFL	NO P/R	OPT-OUT	TAX	TAX
PA	NO P/R	TAX	TAX	TAX
PA UC	NO P/R	EXEMPT	EX 18	TAX
FUTA	NO P/R	EXEMPT	EX 21	TAX

Partnership LLC

Form 1065

	Owner	Spouse	Child	Employee
SS	NO P/R	TAX	EX 18	TAX
MED	NO P/R	TAX	EX 18	TAX
FED	NO P/R	TAX	TAX	TAX
NJ	NO P/R	TAX	TAX	TAX
NJ UI	NO P/R	EXEMPT	EX 18	TAX
NJ DI	NO P/R	EXEMPT	EX 18	TAX
NJ FLI	NO P/R	EXEMPT	EX 18	TAX
NY	NO P/R	TAX	TAX	TAX
NY UI	NO P/R	TAX	EX 21	TAX
NY DBL/PFL	NO P/R	TAX	TAX	TAX
PA	NO P/R	TAX	TAX	TAX
PA UC	TAX	TAX	TAX	TAX
FUTA	NO P/R	EXEMPT	EX 21	TAX

Sub-Chapter S-Corp

Form 1120S

	Shareholder	Spouse	Child	Employee
SS	TAX	TAX	TAX	TAX
MED	TAX	TAX	TAX	TAX
FED	TAX	TAX	TAX	TAX
NJ	TAX	TAX	TAX	TAX
NJ UI **Shareholder UI eligibility limited	TAX**	TAX	TAX	TAX
NJ DI	TAX**	TAX	TAX	TAX
NJ FLI	TAX**	TAX	TAX	TAX
NY	TAX	TAX	TAX	TAX
NY UI	TAX	TAX	TAX	TAX
NY DBL/PFL	TAX	TAX	TAX	TAX
PA	TAX	TAX	TAX	TAX
PA UC	TAX	TAX	TAX	TAX
FUTA	TAX	TAX	TAX	TAX

C-Corporation

Form 1120

	Owner	Spouse	Child	Employee
SS	TAX	TAX	TAX	TAX
MED	TAX	TAX	TAX	TAX
FED	TAX	TAX	TAX	TAX
NJ	TAX	TAX	TAX	TAX
NJ UI	TAX	TAX	TAX	TAX
NJ DI	TAX	TAX	TAX	TAX
NJ FLI	TAX	TAX	TAX	TAX
NY	TAX	TAX	TAX	TAX
NY UI	TAX	TAX	TAX	TAX
NY DBL/PFL	TAX	TAX	TAX	TAX
PA	TAX	TAX	TAX	TAX
PA UC	TAX	TAX	TAX	TAX
FUTA	TAX	TAX	TAX	TAX

Not-for-Profit

Form 990

	Owner**	Spouse	Child	Employee
SS	TAX	TAX	TAX	TAX
MED	TAX	TAX	TAX	TAX
FED	TAX	TAX	TAX	TAX
NJ	TAX	TAX	TAX	TAX
NJ UI May be taxable, exempt, or reimbursable	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX
NJ DI	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX
NJ FLI	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX	EX/REIM/TAX
NY	TAX	TAX	TAX	TAX
NY UI 501(c)(3) may elect reimbursable method	REIM/TAX	REIM/TAX	REIM/TAX	REIM/TAX
NY DBL/PFL	TAX	TAX	TAX	TAX
PA	TAX	TAX	TAX	TAX
PA UC 501(c)(3) may elect reimbursable method	REIM/TAX	REIM/TAX	REIM/TAX	REIM/TAX
FUTA 501(c)(3) is exempt; ask for IRS letter	EXEMPT	EXEMPT	EXEMPT	EXEMPT

IRS Pub. 15

Special Tax Considerations

Edge cases worth flagging before you run payroll. These don’t fit neatly into the entity tables, but they matter.

Parent Employed By Child

When a parent works for a son or daughter’s business, wages are subject to SS, Medicare, and federal income tax — but not FUTA, regardless of services provided.

Child In A Partnership

The family-employment exemption applies only when every partner is a parent of the child. A single non-parent partner voids the exemption entirely.

Private Disability Plans

If an employer uses a private disability plan instead of the state plan, obtain a copy. Contribution and coverage rules differ materially from the state-administered version.

S-Corp Election By An LLC

Always ask whether an LLC member has filed Form 2553. Once an S-Corp election is in place, family exemptions disappear and shareholder wages must meet “reasonable compensation.”

**S-Corp Shareholder UI

Shareholders paying state UI may still be unable to collect benefits unless the corporation has formally dissolved or filed for bankruptcy. Confirm eligibility before relying on it.

Not-For-Profit Roles

“Owner” is shorthand for board member or executive director. State UI/DI/FLI treatment depends on the 501(c) subsection — confirm whether the organization is 501(c)(3), 501(c)(6), etc.

State-By-State Notes

What Sets Each State Apart

Federal rules apply everywhere; state rules diverge. Here’s what’s worth knowing about each one.

New Jersey

UI / DI / FLI are state-administered. Sole proprietors and partnership members pay no NJ payroll taxes on their own draws.

Spouses, parents, and children under 18 of a sole proprietor are also exempt from NJ UI, DI, and FLI — a broader carve-out than the federal rule.

S-Corp and C-Corp shareholders receive no family exemption: all wages paid by a corporate entity are fully subject to NJ payroll taxes.

New York

NY UI exempts the sole proprietor, their spouse, and any child under age 21 — a wider threshold than FICA’s age-18 cutoff.

DBL and PFL are required for most employers. A spouse of a sole proprietor may opt out via Form DB-212.5; corporations and LLCs cannot use the spousal exclusion.

PFL is withheld from employee wages; DBL is largely employer-funded with optional employee contributions capped at $0.60/week.

Pennsylvania

PA UC exempts wages paid by a sole proprietor or partnership to a spouse, parent, or child under 18. In a partnership, every partner must share the qualifying relationship.

The family exemption does not apply to LLCs, S-Corps, or C-Corps under PA law — these are treated as artificial entities without family relationships.

PA has no state disability insurance program. PA UC includes a small employee withholding component on top of the employer contribution.

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Reference material only. Tax law and contribution rates change annually; entity-specific facts (S-Corp elections, family relationships, 501(c) designations) materially affect outcomes. Confirm current rules with PayDay Employer Solutions before applying to a live payroll. Source data verified against IRS Publications 15 & 334, NJ DOL Employer Account Guide, NY Form NYS-50, and PA UC Pamphlet UCP-35.

Business Entity Taxation Guide

Business Entity Taxation Guide

How Each Entity Is Taxed

Special Tax Considerations

Parent Employed By Child

Child In A Partnership

Private Disability Plans

S-Corp Election By An LLC

**S-Corp Shareholder UI

Not-For-Profit Roles

What Sets Each State Apart

New Jersey

New York

Pennsylvania

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