25 May What happens if I hire my child for my business?
Q. I would like to hire my child as an employee under my business. They already perform tasks such as cleaning up, filing paperwork and assisting me with several tasks so I might as well pay them and reduce my taxable income. I have several LLCs as a sole owner. What is the minimum age I can start paying them? What paperwork do I need to file with the state and federal government to start this process? I understand they are exempt from Social Security and other taxes if they are under 18,? Do I have to pay payroll tax if it’s my child? And can I pay them up to $13,850?
— Running some numbers
A. Congrats on being self-employed.
That status comes with several perks, including what it means to hire your kids.
It’s a great idea, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
He said there is no minimum age for hiring your children.
What is important is that the job they are doing is age appropriate and they are in fact doing the job, he said.
“Hiring your 10-year-old to change tires in your garage isn’t age appropriate,” he said. “Cleaning tools and sweeping the floor is age appropriate.”
If your business is not a corporation or a partnership with non-family partners, you can pay each child up to $13,850, which is the single standard deduction for 2023, Kiely said.
“If you pay them this amount or less you get to deduct it on your tax return and your child does not have to pay taxes on it,” he said. “You say your businesses are LLCs so you qualify. In addition to deducting it, you are not required to withhold Social Security, Medicare or unemployment taxes.”
You are not required to pay the employer’s portion of those taxes, either, he said.
“If your employees are your children, you do not have to file any paperwork with the state or federal government,” he said. “If you hire kids who are not yours then they have to get working papers from the state.”
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This story was originally published on May 25, 2023.
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