Advantages Of Hiring Your Child For A Summer Job – At Your Office!

Hiring your child for a summer job creates a potential tax break while helping put money away for college or other expenses.?

If you’re a small-business owner with children who can work, your child for a summer job can work in your favor and theirs.?

Here are the details you need to know in order to comply with the tax and legal requirements of hiring your kids.?

The position must be a legitimate job and be on your payroll system?

You will need to handle the position and your child as an employee, just like any other worker. Keep the same records, including timesheets and job descriptions as you would for all your employees.?

Apply for a payroll number for your child. Issue your child a Form W-2. See if you need to get a work permit from your child’s school and review the local labor laws.?

The work performed by your child must return value to the company and must comply with local laws. You can’t create a fake make-work job and your child’s pay must be reasonable and in line with what you would pay others for the same work.?

Hiring your child creates the opportunity to teach them how to calculate taxes?

Many children are surprised at how much of their money goes to the government. Hiring your child is a chance to teach them how the system works and how they can estimate their take-home pay from their summer job. You will be able to put money in your child’s bank account at a favorable tax rate.?

Let’s say you operate as a sole proprietor in the 37% tax bracket. You hire your 16-year-old daughter to help with office work full-time during the summer and part-time in the fall. She earns $10,000 during 2024 and doesn’t have any other earnings.?

Instead of you spending your $10,000 that you earned on which you paid a tax of $3,700 (37% of $10,000), she will have that money to spend if she earns herself with low or no income taxes. That’s because she can use her $14,600 standard deduction for 2024 to completely shelter her earnings.?

If she earns more than that amount from her summer job, her income above the standard deduction is taxed at the beginning at a rate of 10%, instead of being taxed at your higher rate.?

You may enjoy reduced payroll taxes for your child?

If your business isn’t incorporated and certain conditions are met, your child’s wages are exempt from Social Security, Medicare and federal unemployment taxes. Your child must be under age 18 for this to apply (or under age 21 for the federal unemployment tax exemption) to his or her situation.?

If your business is incorporated or is set up as a partnership that includes non-parent partners, your child does not qualify for a payroll tax exemption. When hiring your child for a summer job, their wages are subject to income tax withholding, regardless of age, no matter what type of entity you operate.?

Don’t forget about your company IRA?

Does your business have a retirement plan? Depending on its terms, your child may qualify to begin earning retirement benefits that can grow over many decades.?Though the amount of money they can shelter in your plan is relatively small, it will grow over many, many years, amounting to a very nice nest egg in the long term. Be sure to check on the terms of your plan to see if your child will qualify.