Things to Consider about Hiring your Child
Hiring your kiddo to work for the family business can be a win-win situation for both of you. But there are some things to think about before you hire your children, we’ll be going over the benefits of having your child at work with you and the laws you need to be aware of when hiring your child.
Having your child work with you can be beneficial for you, with potential tax savings, and for your child who can save money for college, retirement, or something else.
Work Experience and Hiring your Child
Developing a good work ethic during youth will create a foundation for the rest of their life. When teens get a job, they learn strong work habits, improve their time management and organization skills, and have an opportunity to earn and save their own money. Hiring your kid at your small business can also help them build up their confidence and their sense of independence.
While some parents may be hesitant to overburden their kids, it’s evident that work experience is beneficial for many young adults. Researchers have found that it’s linked with higher earnings later in life, lower pregnancy and crime rates, and high school graduation rates.
Child Employee/Parent Employer Tax Advantages
Children working for a family business may be able to keep more of the cash they earn. Only if the business you own is a sole proprietorship or a partnership owned by you and your spouse, or if it’s an LLC that is treated as such for tax reasons.
According to the IRS, if your child, eighteen or under, works for your unincorporated family business, here–in Florida their wages are exempt from Social Security, Medicare, and FUTA (Federal Unemployment Tax Act) taxes. If they’re twenty-one or younger, they will be paying Social Security and Medicare taxes, but are exempt from FUTA taxes. However payment for their services, regardless of their age, is income tax withholdable.
As a parent who hired their child, you will qualify for a business tax deduction that reduces their federal income tax bill and may also lower their self-employment and state income tax bills (only if they’re applicable.) The tax deduction deducted as a business expense will equal the number of wages you pay your children to work in the business. It’s only available to incorporated and unincorporated companies.
FLSA + Your Business
The FLSA or Fair Labor Standards Act is a major US labor law, it created the rights to minimum wage and overtime pay. This important law includes many provisions about child labor, however, there are some exemptions for family-owned businesses.
For example, unless it’s a job where minors under eighteen aren’t allowed to work, then minimum age restrictions and rates generally do not apply. There are some differences between state and federal laws, so be sure to check Florida’s labor laws.
Hiring children is a good tax-saving strategy for both the parents and the children alike in a family. And when following the rules, most families can come out ahead at the end of the fiscal year. The IRS knows that the tax breaks create an incentive for some to bend–or even break the rules.
The government is on the lookout for those being untruthful, avoid that temptation and save yourself the trouble of the legal troubles and hassle of dealing with an IRS audit. Running a small business is a big responsibility, wearing many hats is your job. Being a legal professional probably isn’t one of them–let us here at Dowd Law wear that hat for you.