Your teenager needs a summer job and it just so happens that you have some clerical work at the office that needs to be done. Sounds like a perfect match? It might be just that. There may be some cost advantages available if you’re a sole proprietor and considering hiring your child as an employee for the summer.
Taxes on Your Child’s Income
Children of the business owner, under age 18, are exempt from FICA payroll taxes and those under age 21 are exempt from FUTA payroll taxes. Since the wages are deductible business expenses, it allows you to potentially shift income from your higher tax bracket to your child’s lower tax bracket. Shifting income down to your teenager could also help you reduce the chances of having to pay other unanticipated additional taxes.
(You might also like our post: Hobby or Business: How to Tell the Difference and Get the Tax Benefits)
You may have heard of the term “Kiddie Tax” and wondered if it would come into play here. It actually doesn’t apply in this scenario. The reason being is that if you’re hiring your child as an employee for the summer, the income is considered “earned” rather than “unearned”. Since the wages paid to your child are considered “earned income”, up to $6,100 of the wages in 2013 are sheltered by the child’s standard deduction.
(You might also like our post: Vacation Rental Tax Rules)
Regulations on Child Labor
If you’re hiring your child as an employee for the summer, their wages need to be reasonable. You also need to update and maintain records of their hours worked and services performed. Another factor to keep in mind is The Child labor provisions from the Fair Labor Standard’s Act. The FLSA limits the hours and types of jobs children can work, depending upon their age. (Visit www.youthrules.dol.gov for more information).
If you are trying to determine whether or not hiring your child as an employee this summer is the right move for you, don’t hesitate to contact our office. We can walk through the details with you.
By: Sarah Moore, Manager at WHH
