Employing your child in your business can be a mutually rewarding experience, offering valuable learning opportunities and potentially significant tax savings for both of you.
To help you decide whether this tax-saving strategy is right for you, I’ve written a series of posts where I lay out the exact steps you need to take and the questions you should consider before, during, and after hiring your kid.
This series is designed to help you understand the whys and hows of hiring your child. Once you’re done reading today’s article about what to consider before hiring your child, make sure to read my other free posts on this topic. My goal is that once you’re done reading the information (and using my free tools and templates that are included in these posts!) you’ll have a complete understanding of how to maximize this tax-saving strategy:
- Hiring Your Child: A Step-by-Step Guide
- How to Pay Your Child as an Employee of Your Business: A Step-by-Step Guide
- How to Hire Your Child to Work for Your Corporation: Creating a Family Management Company
How does hiring my kid save me tax money?
The way this works is your business deducts the wages your kid earns as a business expense. This expense is deducted from the taxable income reported on your yearly business tax return. Since this lowers the business’ taxable income, it reduces the business’ tax liability (how much the business owes in taxes). This can save you several thousand dollars each year!
Additionally, depending on your child’s age, you and your child may not need to pay Social Security and Medicare (FICA) taxes or federal unemployment taxes (FUTA) on their income. Currently, the employee and employer each are required to pay 7.65% of their income for FICA, which adds up to a total of 15.3%. As for FUTA, the current rate is 6%. If avoided, that adds up to 21.3% of income not going to the tax man!
But wait. There’s more! No matter your child’s age, if your child doesn’t earn more than the standard deduction amount each year, then they likely won’t pay income taxes on the amount they earn from your business (the standard deduction is $14,600 in 2024).
In other words, because a minor will likely be in a lower tax bracket than the business owner and will not be required to pay employment taxes on their income (if under 18), many business owners who are parents use this strategy as a way to shift income from the business to a minor working for the business in order to save tax money on that income.
Believe it or not, there are even more reasons why hiring your child can be a great idea for you, your business, and your family, but we’ll get to those later. First, we need to cover the basics of whether you can hire your child and what your child could do for your business.
Can I Hire My Child?
I know you’re eager to give your kid some work while also saving tax money, but first things first, you need to figure out if you can hire your child. The two most important considerations are age and job duties being performed:
Age: You can generally employ your child at any age as long as they are working for a business that is entirely owned by their parents. If you thought 14 was the earliest they could work, you’d be right if they weren’t working for a family business. The federal child labor laws have an age exemption for kids working for their families.
However, if you plan to employ your kids and prove to the IRS that your kid is actually providing the services or performing the job duties you’ve laid out (which we’ll talk more about later), then I suggest waiting until your child is 7 years old.
Job Duties: Even though the federal child labor laws have different requirements for kids working for their family’s business, there are still strict rules about kids not performing jobs considered hazardous. For instance, jobs that require kids to operate certain types of machinery or handle dangerous materials are still prohibited even if the child is working for a family business.
Additionally, you’ll want to make sure your state doesn’t impose more restrictive laws than the federal government. For instance, some states have more restrictions about kids performing jobs in establishments where alcohol is served or kids performing agricultural, entertainment, or door-to-door sales jobs. Other states have restrictions about the times of day that kids can work for their families. Some states are even starting to pass laws about kids who are child influencers or who create monetized digital content.
Which jobs can my child perform for my business?
There are tons of jobs children can perform for a parent’s business! Obviously, you’ll want to consider your child’s age and skill set when assigning tasks or job duties (just like you would for any other employee), but you may be surprised how many things your child can do to help your business!
Some common examples of job duties for kids are:
- Clean and organize offices, stores, or paperwork
- Create content for websites, mailings, or brochures
- Data entry
- Fulfilling orders
- Graphic design
- Inventory
- Landscape or maintenance tasks
- Make deliveries and run business-related errands
- Model for advertisements
- Package and ship products
- Photograph products
- Place orders
- Post on business’ social media accounts
- Provide customer service
- Provide technical support to employees or customers
- Research products and purchases
- Sales and marketing tasks
- Stock shelves
- Test products
- Training or onboarding of new employees or younger siblings
- Update website content
Are there other benefits to hiring my kid to work for my business?
If the tax benefits alone don’t have you buzzing, I also want to take a minute to run through some other benefits that come from hiring your child to work for you:
- This is the perfect opportunity to teach them about money management.
- The money your child earns can be used to save for education and retirement (more about that later in this series).
- You can show your kid firsthand what it takes to run a business, which is especially important if you’re thinking they might take over the business or if you want to encourage their entrepreneurial spirit.
- You can teach your kid work ethic and model work-related skills for them.
- You’ll create lasting memories together as you bond and collaborate to get the job done.
Now that you know why your child should work for you and what your child will do for your business, it’s time to move into the nitty-gritty steps you’ll take to make them your next employee! I’ve laid it all out for you in my next post: Hiring Your Child: A Step-by-Step Guide.
