Medical Insurance
If your business is operated through a sole proprietorship, putting your spouse on the payroll will allow you to fully deduct health insurance premiums. You can accomplish this by setting up a health insurance plan for all employees (e.g., your spouse). The cost of the medical insurance is a tax deduction for the business. Generally self-employed can only deduct 60% of medical insurance premiums but putting your spouse on the payroll increases this deduction 100%.

Business Trips
If you take business trips, you are not allowed to deduct your spouse's expenses, no matter how vital or important he or she is to the success of the trip, unless your spouse is a bona fide employee of your business.

Avoid Double Tax
If you do business through a C (regular) corporation, paying a salary to a spouse allows you to take earnings out of the corporation without paying a double tax. For example, if money is taken out of a C corporation via a dividend, a tax is paid on the original earnings by the C corporation and a second tax is paid by the shareholder when the dividend is received. Whereas, money taken out of a C corporation as salary is taxed only once - to the wage earner.

Social Security
If your spouse isn't currently working or is not earning the social security maximum, collecting a salary from your business will increase his or her future social security benefits.

Increased Pensions
Generally, only the first $170,000 (indexed for inflation) of salary can be taken into account when computing allowable contributions to most qualified retirement plans. If your salary is more than that, putting your spouse on the payroll and shifting some of your salary, in excess of $170,000, to your spouse will increase your combined retirement contributions.

Childcare Deduction
Putting your spouse on the payroll will make you eligible to claim a credit for expenses incurred for child care. The size of the credit depends on two things: how much you pay for childcare and your Adjusted Gross Income. The maximum allowable credit for two or more children is $960.

CAUTION
If you put your spouse on the payroll, you have to pay payroll taxes on the additional salary. Payment of the payroll taxes will offset some of the benefits gained by putting your spouse on the payroll. Furthermore, your spouse must perform legitimate work for the business.