How blue-return family salaries work, and your withholding duties when you pay contractors and staff.
Blue-return filers can deduct a reasonable salary to a family member who works exclusively in the business (with a filed notification), and once you pay staff or certain fees you take on withholding and payment duties as the payer.
Normally you cannot deduct wages paid to your spouse or relatives, but the blue return has an exception: a salary to a family employee who works exclusively in your business (青色事業専従者) is deductible, provided you file the required notification in advance and the amount is reasonable for the work done. This can shift income within a household to lower overall tax — but the salary becomes the family member’s own taxable income, and the “exclusively working in the business” condition is real, so a token salary to someone with a separate full-time job will not stand.
Keep it defensible: file the notice on time, pay an amount consistent with the duties and market rates, actually pay it, and keep records. Overstated family salaries are a common audit target.
Once you pay others, you take on the payer’s duties. If you hire employees, you generally must withhold their income tax, handle their year-end adjustment, and enroll them in labor insurance (workers’ comp and, where applicable, employment insurance); at a certain size, employees’ health and pension insurance applies too. Even without employees, paying certain professional fees to individuals — the same categories that are withheld from your own invoices — can make you the one who must withhold and remit.
For pure outsourcing to another business or freelancer, you usually just pay the invoice, but keep the contract and records, and remember the invoice system: to claim input credits you need qualified invoices from registered suppliers. If payroll or withholding gets complex, this is a natural point to bring in a tax accountant or payroll software.
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Normally wages to family are not deductible, but blue-return filers can deduct a salary to a family member who works exclusively in the business (青色事業専従者) if they file the required notification in advance and the amount is reasonable for the work. The salary becomes the family member’s taxable income, and the “works exclusively in the business” condition is real — a token salary to someone with a separate full-time job will not stand. Keep it defensible with a timely notice, market-consistent pay, actual payment, and records, as overstated family salaries are an audit target.
For certain fees paid to individuals — writing, design, translation, lectures, and some professional services — the paying company must withhold income tax at source (about 10.21%) and remit it for you, so the deposit arrives smaller than the invoice. This is a prepayment, not a loss: when you file, you total the tax already withheld from each client’s payment record and credit it against what you owe, which often produces a refund. Track withholding per client so you claim all of it and don’t effectively pay twice.