Hiring your children to work the family business can save you income and self-employment taxes. Small businesses need every break they can get to compete with big business. Here is an idea to consider – hire your child.
Paying wages to an employee can reduce the amount of income subject to income tax and self-employment tax. You are not required to pay FICA (15.3% total, 7.65% each employer/employee) or FUTA (6% on first $7,000 of wages) taxes on wages paid for services provided by your child under 18 years of age.
Further, if your child is required to file a return and earns less than the standard deduction, it is possible that they would owe no income tax.
The child’s wages must be based on actual work or services performed. Timesheets should be kept and the business owner is required to file payroll returns.
Honorine M. Campisi, CPA