If you have a small business that is a proprietorship, or if you have a partnership with you and your spouse as the only partners in the company, you can take advantage of hiring your kids. This is also true if the business is a sole proprietorship, or a single-member LLC that is considered a sole proprietorship for taxation purposes. When the family business is an S or a C corporation, you can also hire the kids, but it may not offer all of the same benefits. hiring kids
Hiring the kids makes sense for the family business for several reasons. It will help your company as well as allow the teens and young adult children the opportunity to earn income with limited to no taxes. hiring kids
Any parent hiring a child has to manage their employment records just as they would any other employee. This means that the business will issue a W-2 tax form for tax purposes at the end of the year for that child.
The child must be hired with a “fair” wage. In other words, the work performed and the wages paid must be compatible with the child’s age and the actual hours they are available. Hiring kids also falls under the Fair Labor Standards Act, so it is important to make sure that the type of work and the age of the child is appropriate under this act.
It is also important that the job the child does is related to your business. For example, if you have a landscaping business you could hire your child to work with your crews mowing lawns, but you couldn’t hire them to paint your house and use that as a deduction for wages from your landscaping business.
What The Business Saves
For teenage children working in family businesses, there are no deductions for Social Security, federal unemployment taxes or Medicare as long as the children are under the age of 18. Additionally, your kids can keep working for your business up to age 21 before you will have to start paying unemployment tax.
The wages that you pay your teens or young adult children becomes a business deduction, which will reduce both your self-employment tax and federal income tax by lowering your adjusted gross income.
What the Kids Get
Teens will be able to earn up to $6,350 (as of 2017) before they have to pay any taxes on the income. Even they make up to $9325 they will only be taxed at a 10% rate, which results in very low taxes even for the kids that are higher income earners from the family business.
Kids that are under the age of 19 don’t have to pay any “kiddie tax” and students that are full-time and dependents don’t have to pay tax unless they are over the age of 24. There may be some exceptions, so be sure to check with your business tax advisor to see if there are any potential issues with hiring your children.