School is out and you are wondering how to keep your kids occupied for the summer – why not think about hiring them to work in your business? This is an option for many business owners as long as the federal and state laws are followed. You need to treat your child as you would treat other workers.
There are benefits to hiring your children (ages 7 and up) in your business:
- You do not have to pay Social Security or Medicare, unless your business is set up as a corporation.
- You can deduct their wages as a business expense.
- Your child does not have to pay income tax as long as their income is below the standard deduction.
- You can put some or all of their earnings (depending on limits) aside into an IRA. You can ask your tax advisor which type would be best.
The work performed by your child in your business must be considered necessary and essential for your business. You should have them track their time and you should document their role in the business for your files. You cannot just make up jobs for them that would not be needed for your business. If you would hire another worker to perform the job your child is doing, then you have a business reason to hire them.
If your business is a corporation, you will have to pay payroll taxes on your child’s wages. You will need to pay them a fair wage for the work they perform and must do all payroll paperwork required. You should always pay them via check, not cash, so you have record of the payment.
Please note the federal and state child labor laws to ensure all rules are adhered to, so you do not violate these laws and lose out on the tax savings from hiring your child. Also, note there are additional age restrictions based on the type of job the child may be performing.