How To Sign Up Your Kids For A Summer Job -At Your Office!

If you’re a small-business owner and you hire your children this summer, you may be able to secure tax breaks and save for college.

What if your business has a retirement plan? Depending on its terms, your child may qualify to begin earning retirement benefits that can grow for many decades.

The Position Must Be a Legitimate Job, on Payroll

The position should be as it would for other employees. Be sure to keep the same records, including timesheets and job descriptions.

Apply for a payroll number for your child. You will issue your child a Form W-2. See if you can even get a work permit from the school and review the local labor laws. The work performed by the child must be legitimate and the child’s pay must be reasonable.

Teach Your Kids How To Calculate Taxes

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.

You save $3,700 (37% of $10,000) in income taxes at no or very low tax cost to your daughter. That’s because she can use her $14,600 standard deduction for 2024 to completely shelter her earnings.

Your family’s taxes are lower even if your daughter’s earnings exceed her standard deduction. Why? The unsheltered earnings will be taxed to her beginning at a rate of 10%, instead of being taxed at your higher rate.

There are Reduced Payroll Taxes for Your Children

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).

Be aware that there’s no payroll tax exemption for employing your child if your business is incorporated or is a partnership that includes nonparent partners. And payments for the services of your child are subject to income tax withholding, regardless of age, no matter what type of entity you operate.

Bernstein Financial Services Inc. provides a wide range of services to individuals and businesses in a variety of industries. We do not provide legal advice. This article is for educational purposes only and should not be taken for business advice about your specific situation. Please?schedule an appointment?with a Principal at Bernstein?Financial?Services to help you determine your optimal planning strategies.