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How to Employ Your Child Legally

How to Employ Your Child Legally

Preggy Finance: Legal Employment Strategies for Your Child

Looking up regulations may help you pay less tax on income. Can you pay your kid 12k a year – really? Well, yes and no.

Preggy Finance: Legal Employment Strategies for Your Child

Preggy Finance: Legal Employment Strategies for Your Child

Get a Tax Pro and/or Lawyer to Help You Decide How Hiring Your Child Coincides with Labor Law and any other applicable Restrictions!

How to Hire Your Kid as an Employee

baby, boy, child

baby on computer

If you already give your kid an allowance, then you might want to find a way to get a tax break on all their labor. After all, if you can write off their work as a business expense — it may be a win-win situation.

Not all children’s labor is going to pass muster, but there are legal ways to employ your kid in your business. Generally, a child’s wages are tax free, but it’s not always fee-free tax savings. Hiring your child means they have taxable income that may be subject to medicare taxes, federal unemployment taxes, social security and other obligations. If they owe or don’t will be seen when they file a tax return. Whether they even have to really depends on their age, the type of work available, and how you declare their work as a business expense. If you own your own business, they can work for you as legally paid employees, and you can deduct their salaries as a business expense with the IRS.

Since the IRS has special rules for hiring children, you need to do your research to avoid penalties and lawsuits. Check out this IRS video that explains in detail.

Preggy Finance: Legal Considerations for Employing Your Child

Preggy Finance: Legal Considerations for Employing Your Child

Is it ok to employ your kids?

There are some considerations when hiring your child. There are some jobs that are off-limits for children, so you can’t hire your child if they are too young. There are some child labor laws that restrict how many hours kids can work and what kind of industries they can work in. Typically children can feature in or manage social media accounts

Like any other employee, wages to family members can help defray your business income but you still may have to pay payroll taxes. This may be a huge help if your company is a sole proprietorship, single member LLC, or a large company.

Child’s wages are assumed to be an easy way to bolster tax savings if you have your own small business, but there are federal income taxes, medicare taxes and payroll taxes to consider. Although most minor children can be paid up to $13,850 in 2023 without paying income tax, the income is not always tax free. Usually, they don’t have to file their own tax return, but in some cases, they may have to, and that comes at a cost. They may be subject to a special child’s tax rate depending on what they do for work for your business.

child, boy, people

child, boy, smart, glasses

Be aware of these considerations:

Consider the age of your child.

Study the child labor laws in your state. Their age will determine what type of job they can perform and, thus, market rate salary for their work. For smaller kids, jobs like modeling might work. Whereas older kids might take on a more substantial role.

Chores and simple errands rarely count as work.

So your company will need to have real meaningful work to offer – whether that’s modeling products or making deliveries. Make sure the role is not hazardous to their health or well being.

Maturity Level Matters.

This is about more than age. If your kid is forgetful, don’t make them your assistant. Similarly, consider their emotional intelligence level. Can they handle rejection or will they need a lot of supervision? If they are employed as a caregiver, make sure they are trained properly.

File all the necessary paperwork.

In order for things to be legally sound, you’ll need to submit appropriate tax withholding documents (W2, W9s, etc.) for your business. Confirmation of receipt of their salary should also be well documented.

Learn about the tax benefits.

Although there are many tax benefits to consider, employers still may have to withhold income tax–even though the child will be entitled to a complete tax refund the child’s wages at the end of the tax year. Each child may have different reasons why they may be subject to federal income tax, social security and medicare taxes. Federal income tax can be complicated. Consult a tax accountant to better understand how to manage tax benefits for the business and for your child.

teamwork, farm workers, co-operation

kids, teamwork, farm workers, co-operation

Here are some job categories to consider:

Unskilled jobs: These include janitorial work, social media management, making deliveries, preparing orders and shipping items, product research and sourcing, inventory management, modeling, etc.

Skilled Jobs: This includes graphic designing, creating sales copies, website designing, digital advertising, apprenticeships, photographing, styling artists, etc.

Outside Your Family Business: This depends on your child’s age. Some options include babysitting, tutoring, freelancers, product designers, salespersons, etc.

Learn more about how you can save money and manage parenting expenses through the Preggy Finance Course. Join us today!

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