Hiring family members in a NEMT business: payroll tax rules, credentialing, and broker conflict rules
Overview
When a sole proprietor pays their own child under 18, neither side owes Social Security or Medicare tax, and pay to a child under 21, a spouse, or a parent carries no FUTA. A company taxed as a corporation gets none of these breaks. Relatives still need full driver credentialing, no one under 18 may drive paid passengers, and some Medicaid programs bar drivers from carrying their own relatives.
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What changes when the employee is family
Take a household-run company as an example: one spouse drives, the other books trips, a teenager answers phones after school, and a retired parent covers the morning dialysis run. Putting relatives like these on the payroll changes three things and leaves the rest alone.
- Payroll taxes. Some family wages skip Social Security, Medicare, or federal unemployment tax, but only in certain business structures.
- Who can drive. Federal child labor rules and broker contracts set minimum ages that no family exemption overrides.
- Who can ride. Some Medicaid programs refuse to pay when a provider or driver carries their own relative, and federal rules bar brokers from steering trips to companies their relatives profit from.
Everything else is the same as for any other hire. A relative who works for pay gets a Form W-4 and a Form I-9 (USCIS requires one for every person hired to work for pay), goes on the state new hire report, and needs time records. The setup steps are in our guide to hiring your first employee.
Payroll taxes by relative and business type
The federal family exceptions depend on two facts: how the relative is related to the person employing them, and whether the employer is a person or a corporation. A sole proprietorship is the owner, so the family relationship counts. A corporation is a separate employer, so it never does, even when one parent owns all of it.
This grid shows which federal employment taxes apply to wages paid for work in the business. Federal income tax withholding applies in every case.
| Family member | Sole proprietorship or disregarded single-member LLC | Corporation, including an LLC taxed as one |
|---|---|---|
| Your child under 18 | No Social Security, Medicare, or FUTA | All payroll taxes apply |
| Your child age 18 to 20 | Social Security and Medicare apply; no FUTA | All payroll taxes apply |
| Your child age 21 or older | All payroll taxes apply | All payroll taxes apply |
| Your spouse | Social Security and Medicare apply; no FUTA | All payroll taxes apply |
| Your parent | Social Security and Medicare apply; no FUTA | All payroll taxes apply |
Partnerships sit in between. A partnership gets the child exceptions only when every partner is a parent of the child, so a business owned by a married couple qualifies for their children and a business with an outside partner does not. A spouse’s wages from a partnership carry FUTA as well as Social Security and Medicare, even when the other spouse is one of the partners.
The LLC catch
Most NEMT companies are LLCs, and the tax election decides which column applies. Treasury rules generally treat a disregarded single-member LLC as a corporation for employment taxes, but they carve out the family exceptions: for those, the owner is treated as the employer. A parent who owns a single-member LLC that never elected corporate status can therefore pay their own 16-year-old for office work without Social Security or Medicare tax. Once the LLC elects S corporation or C corporation treatment, it is a corporation, and the child’s wages are taxed in full. An LLC with two or more members is taxed as a partnership by default, so the every-partner-is-a-parent test applies.
Spouses: employee or partner
A spouse goes on payroll only when the relationship really is boss and employee: one spouse makes the management calls and directs the other’s work. If the two of you share control, do a comparable share of the work, and both put money in, the IRS reads the arrangement as a partnership instead. Our guide to running a NEMT business with your spouse walks through that choice and the returns that go with it, and NEMT business taxes covers the owner side.
No one under 18 drives paid trips
Federal child labor rules list driving a motor vehicle on public roads as a hazardous occupation for 16 and 17 year olds. The parental exemption lets parents employ their own children below the usual minimum ages, but it does not reach any occupation that carries an 18-year minimum, so it never covers driving. The only allowance, for 17-year-olds doing occasional and incidental driving, excludes transporting passengers for hire and caps any trip at three passengers. A teenage son or daughter can answer phones, wash vans, or work in the office. For a child under 16, the federal parental exemption covers that kind of work only when the parent alone is the child’s employer, and state child labor laws may add limits of their own.
Brokers often go further. Under MTM’s provider agreement, drivers and attendants must be at least 21, must “read, write and communicate effectively in English,” and must each be “a U.S. citizen or legal resident alien.”
Relatives need the same driver file
There is no family discount on credentialing. The federal Medicaid statute’s driver rules, in section 1902(a)(87) of the Social Security Act, say nothing about relatives. A paid driver has to be clear of federal health care program exclusions and licensed to drive, and the company has to show how it handles state drug law violations and how it reports each driver’s history behind the wheel, tickets included, to the state. A spouse or a son clears that bar the same way a stranger does. Run the same checks, keep the same driver file, and set the same renewal dates; our pages on driver requirements and background checks list what goes in it. Tell your commercial auto insurer about every driver too, including a relative who only covers the occasional shift; our guide to insurer approval for drivers explains why.
When the rider is family
Some Medicaid programs will not pay a provider or driver to carry their own relative.
- Colorado. The state’s Medicaid rules list transportation of a NEMT provider’s family member or household member among the services not covered. If a provider’s relative needs a ride, an unrelated provider has to take the trip, or the member can use the program’s personal mileage reimbursement.
- Kentucky. Its private auto providers, individuals paid a set mileage rate to drive Medicaid members in their own cars, may not transport a family member or anyone who lives in the same household.
Federal rules add two related limits. When Medicaid pays for an attendant to accompany a member, it covers the attendant’s travel, meals, and lodging, but pays a salary only if the attendant is not a member of the rider’s family. And a non-governmental broker may not refer trips to a transportation company when the broker, or an immediate family member of the broker, has a financial relationship with that company. The exceptions need documentation, for example a rural area where the broker itself is the only qualified provider. If a relative of yours owns or runs a broker, raise it with that broker in writing before you sign.
Workers’ comp for relatives varies by state
State workers’ compensation laws treat family members in opposite ways, so check yours before assuming a relative is covered or exempt.
- Tennessee. Outside construction, coverage is required at five employees, and minors, working family members, and part-time employees all count toward the five.
- Kansas. The act does not apply to an employer whose total payroll stayed at or under $20,000 last year and is expected to stay there, and wages paid to members of the employer’s family by marriage or blood are left out of that total.
- Minnesota. The act does not apply to the spouse, parent, or child, of any age, of a sole proprietor or of a partner in the business. The same goes for the spouse, parent, or child of an owner with at least 25% who is an officer of a small closely held corporation or the manager of an LLC with 10 or fewer members, where small means under 22,880 hours of payroll last year. Those companies can also file a written election to exclude other relatives of that owner within the third degree.
A relative left outside the act has no workers’ comp benefits to claim after a lifting injury, so ask your agent whether your state lets you elect coverage for them. Our workers’ comp guide explains how premiums are figured and what other states require.
One wage rule to know
The federal wage law has a narrow exception for a business staffed only by family. An establishment whose only regular employees are the owner and the owner’s parent, spouse, child, or other immediate family is not counted as a covered enterprise under the Fair Labor Standards Act. The exception ends with the first regular employee from outside the family, and state wage laws can apply regardless, so treat it as a reason to check, not a reason to skip time records.
Relatives on the board in HealthRide
In HealthRide, family drivers are tracked the same way as everyone else. Each license, CPR card, or training record you add in fleet management carries its expiration date. A reminder goes out ahead of that date, and anything expired is flagged as soon as someone tries to assign that driver. Clock-ins from the driver app build each driver’s timecard, so a spouse’s or a son’s hours sit in the same reports as everyone else’s.
Frequently asked questions
- Does my spouse have to be on payroll?
- Only if your spouse works under your direction. When one spouse runs the business and tells the other what to do, the second spouse is an employee, and the wages carry income tax withholding plus Social Security and Medicare, though no FUTA in a sole proprietorship. When control, work, and capital are shared, the IRS treats the couple as partners filing Form 1065, unless the business elected S or C corporation status.
- Can my 17-year-old drive trips for the family company?
- No. Federal child labor rules make driving on public roads a hazardous occupation for 16 and 17 year olds, and the exemption that lets parents employ their own children does not cover hazardous occupations. The narrow allowance for 17-year-olds excludes carrying passengers for hire. Broker contracts usually set a higher floor anyway; MTM's provider agreement puts the driver minimum at 21.
- Do I still save payroll taxes on my kids if my company is an LLC?
- Only if the IRS disregards the LLC. For a single-member LLC without a corporate tax election, Treasury rules treat you, the owner, as the employer for the family exceptions, so a child under 18 still avoids Social Security and Medicare tax. An LLC that elected S or C corporation status is a corporation, and every family employee's wages are taxed like anyone else's.
- Can my brother drive his own wife to her appointments for our company and bill Medicaid?
- Check your state's rules first, because some programs forbid it. Colorado's Medicaid rules list a provider's transport of its own relative or household member as not covered; an unrelated provider has to run the trip, or the member can use personal mileage reimbursement. Kentucky bars its private auto providers from carrying a relative or someone who lives under the same roof.
- Do relatives count toward the workers' comp headcount?
- In some states they do. Tennessee counts working family members, minors, and part-time staff toward its five-employee threshold. Kansas leaves wages paid to members of the employer's family out of the $20,000 payroll test that decides whether its act applies. Minnesota's act does not apply to the spouse, parent, or child of a sole proprietor or partner at all.
- Does a relative need the same background check as other drivers?
- Yes. The federal Medicaid floor for drivers makes no exception for family: the driver needs a clean federal exclusion check and a valid license, and the company needs a plan for drivers who break state drug laws and a way to send the state each driver's record. Brokers and insurers add checks of their own, and none of them carve out relatives.
