Hire Your Kids for Tax Savings

Summer’s almost here, and soon most children will be on their long-awaited summer vacation. If you own or manage a business, have you thought of hiring your children, nieces, or nephews for a summer job?

If you do it right, it can be a win-win situation for everyone.

The kids will earn some money and gain valuable real-life experience in the workplace while your business will have some extra help during summer months when other staff may be on vacation. If it’s a family business, there might even be some tax advantages as well.

If your child is doing a valid job and the pay is reasonable for the work, your business can generally claim a normal tax expense for wages paid. Your child will probably pay no or very little income tax on the wages they earned. And if the child is under age 18 and your business is unincorporated, neither your child nor your business will have to pay Social Security or Medicare payroll taxes in most cases.

To make the arrangement work, follow the following guidelines:

• Ensure it’s a real job. It could be a simple job, such as office filing, packing orders, or simple production activities. But it needs to be an actual job.
• Treat your child like any other employee. Expect your child to work regular hours and exhibit appropriate behavior. Don’t show favoritism or you risk upsetting regular employees.
• Keep proper documentation. Keep records of hours worked just as you would for any employee. If possible, pay your child using your normal payroll system and procedures.
• Avoid family disputes. If the arrangement is not working, or is disrupting the business, help your child find a summer job at another business.