Democratic state Rep. Jose "J.P." Miranda, 34, and his sister, Michelle Wilson, 28, each face counts of perjury, criminal conspiracy and conflict-of-interest charges.
A grand jury found that Wilson received a cut of the $36,000 annual salary paid to Timothy Duckett, who held the title of legislative assistant but apparently never showed up at district offices. Instead, he worked at an auto repair shop.
"The grand jury concluded that Mr. Duckett was not only a ghost employee, but was in fact a straw employee," District Attorney Seth Williams said at a news conference Monday.
Prosecutors say Miranda orchestrated the deception because state ethics rules prohibit family members from being on the payroll of elected officials.
Miranda and Wilson denied any impropriety to the grand jury.
But Williams said the lawmaker and his sister "lied repeatedly" in their testimony, and he pointed to emails, ledgers and timesheets that he said proved the scheme existed.
Duckett is cooperating and won't be charged.
The Associated Press contributed to this report.