I would like to share my salary with a small group of family or friends. Is there a way to do this without the income being taxed twice (once for me and once for each friend?
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3What is the purpose of this group? To give everyone the same income? To set an income floor for each person?– user12515Oct 21, 2019 at 16:36
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1How is the "accounting" tag relevant?– D StanleyOct 21, 2019 at 16:52
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What's your ultimate goal? What do you consider "income" for this purpose? Do you mean just salary, or other benefits and forms of compensation as well? Are you asking this on a personal finance scope? It's hard to know if this fits here or would be better at economics.SE, politics.SE, or law.SE– dwizumOct 21, 2019 at 16:56
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2Can you elaborate on what you mean by "no common property"? If you are sharing income, then there must be a shared pot of money. What is the money used for? Note all condo and most homeowners associations have some amount of "common property".– TTTOct 21, 2019 at 16:59
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The purpose would be simply to help friends out - everyone in the group would get/have the same income after it was all pooled together. No common property - besides the money - everyone has their own home and wouldn't necessarily live in the same area - just the same state.– AnnieOct 22, 2019 at 17:25
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2 Answers
Perhaps you could form a (non-profit?) corporation for this express purpose? It hires everyone in the group. The corporation then hires out its workers, bills for them and collects the money, and then distributes it to its employees according to whatever scheme is decided on. For instance, if you want to guarantee some minimum income to everyone, you can pay each person equally up to that amount, with additional funds being distributed according to whatever scheme you come up with.
Note that anybody in the group already employed would need to renegotiate their current employment through the new company unless they wanted to quit. The would include termination of most perks and benefits to be replaced with a somewhat higher compensation rate - basically becoming independent contractors through the new corporation. This is something everybody in the group would want to discuss informally with their employer ahead of time. I know some companies (especially smaller ones) that would have no problem retaining an employee by jumping through some hoops to contract them through an intermediary company but many other companies may have no defined process that would even allow them to do so and may not be willing to even consider it.
Of course you would want to consult with an attorney, accountant, etc. to determine if and how this would be set up and work out in your jurisdiction. For instance, the responsibility for certain taxes (FICA comes to mind in the U.S.) would fall on the new company.
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2The problem with this is that if each person has a "real" job with a real employer (the source of the income they're pooling), that is who the IRS expects to be paying taxes, providing benefits, etc - not this new corporation.– dwizumOct 21, 2019 at 16:54
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1@dwizum It's no different than if you are working for a temp agency... they are contracting out your services to other companies, collecting the money from those companies, and then paying you from some of that. The only difference here is in the length of the contract. Granted, anybody in the group already employed would have to change the status of their relationship with their employer. I'll edit to add that.– user12515Oct 21, 2019 at 17:00
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1It's completely different than a temp agency. What really matters here is who the employer thinks they are paying, because that's the SSN they are reporting to the IRS, associated with their SSI, medicare, employment tax, and individual income tax. Unless you think you can talk your employer into going under contract with this organization, this plan will not work. You can't just decide, on your own, that you work for a company you've created, unless the party that is actually employing you goes along with it.– dwizumOct 21, 2019 at 18:50
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1@dwizum " Unless you think you can talk your employer into going under contract with this organization" That's exactly what I'm saying you would have to do.– user12515Oct 21, 2019 at 19:02
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I see now that you've edited your post to include that clarification. I do think it's a more complete answer now.– dwizumOct 21, 2019 at 20:31
I'm assuming US, but would vary by country/region.
If the disparity in income was low enough between members of this group, income could be distributed via gifts with no tax implications. For 2019 that's $15,000 per person, so one married couple could gift another married couple up to $60,000 with no gift tax or reporting requirement. There is no limit on the number of individuals they gift, so if one family has tremendous income, they might gift all other members of the community.
As far as formalizing/enforcing such an arrangement, doing so would change the nature of the money given (gifts can't be mandatory or given with expectation of reciprocity). A non-profit could be used to handle the distributions, but distributions from a non-profit aren't always considered tax-free gifts and likely this would not pass the charity tests to qualify the non-profit for tax deductible donations.
In some ways, employee-owned companies do this already, but typically those still have pay and ownership structures that value each employee at different rates. Paying all employees the same and sharing ownership equally would accomplish what you are suggesting financially.
