Could you use an extra tax break, however small? The answer might be standing right in front of you. Employing your kids has numerous benefits, whether to introduce them to the family business, enable them to make a little cash or just teach them some basic job skills. Not only is more money kept in the family, but there are tax breaks and other financial incentives for businesses that do so.
According to the Small Business Administration, the spectrum of jobs considered appropriate for youths expands after the age of thirteen to include work in offices, retail stores and restaurants. Whether for part-time or full-time work, here are some financial benefits of hiring your children:
Standard deductions
Parents who hire their children can each use a standard deduction to shelter up to $6,300 of wages in 2015 from federal income tax—up slightly from last year. The amount is $12,600 for married couples filing jointly. “That said, your child will probably owe zero federal employment taxes and zero federal income tax on the first $6,200 of his or her 2014 wages,” says Michael Kline, a partner at Citrin Cooperman, an accounting consultancy in Philadelphia.
Tax incentives
You’re not subject to social security and Medicare taxes for payment to your kids, either, provided the business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments are also not subject to the Federal Unemployment Tax Act tax unless the business is a corporation.
Wages are still subject to income tax withholding, regardless of age. But if your federal tax savings outweigh those costs, your business still comes out ahead.
Workers’ comp
Children don’t need to be covered by workers’ compensation insurance programs, says Kline, “the assumption being that your children won’t sue you for getting hurt on the job.” This doesn’t apply to S corporation or C corporations, however.
Wage tip
Employers may pay workers under age 20 as low as $4.25 per hour for their first 90 calendar days on the job, with some exceptions, as long as it doesn’t displace other workers. After that they are entitled to the minimum wage, but wages should be comparable to someone with similar skills doing the same job, says Rob Schultz, CFP, a financial planner with Encino, Calif.-based NWF Advisory Services Inc.
Maybe you’re ready to shift your focus to legacy planning and making sure the next generation appreciates the concept of work. When you employ your offspring, the most lasting benefits may be for them.
– Provided by the National Federation of Independent Business (www.nfib.com)
