If you own your own business, by hiring your children you can save in the following ways:
- Salaries paid to children under 18 are not subject to Social Security or unemployment taxes (in most states).
- No Federal withholding taxes are required if the child is under age 21 and earns under $5,950 per year.
- Even if the child must pay taxes, the child’s rate of tax is normally lower than your own rate.
- You should not have to pay worker’s compensation for the child as you would on a non-family member.
Set it up correctly
To ensure your child’s income is not challenged here are some suggestions:
- Provide a job that your child can reasonably handle. Ideas include; filling the company vending machine, copying, clean up, mailing, help with advertising, light packaging, light typing and customer service.
- Pay your child at least minimum wage and a wage rate that is comparable to what you would pay someone else to do the work.
- Make payments periodic (at least once per month).
- Include a W-2 at year-end.
- Keep the same payroll records as you do for other employees.
Other things to note
- Hiring your children to work for you does not apply if your business is a C-Corporation.
- This benefit works best if your business is unincorporated (sole-proprietor).
- Do not have children conduct dangerous or heavy industrial work as this could come under review by the Department of Labor.
- Treat your child like other employees. This includes time-cards and training.
Besides the tax benefits, hiring your children can gain them valuable experience and help them understand what you do every day.