Summer help from your kids
The end of the school year is coming quickly. Do you have a plan for what your children will be doing this summer? If they’re not headed to camp or summer school, maybe it’s time to put them on your payroll. But before you hire your kids, here are seven rules you should follow.
Rule No. 1: Ensure your child is a real employee
Your child cannot be on your payroll if they don’t actually do any work for your business. Any tasks they’re assigned must be age-appropriate and legitimate tasks specifically for your business. They can’t be paid to run personal errands or just sit around. Also, make sure they sign an employment contract to provide a paper trail for the IRS.
Rule No. 2: Adhere to employment laws
When hiring your child, they’ll need to fill out Form W-4 and state W-4 forms to stay in compliance with the IRS. They should also complete Form I-9 during the hiring process to confirm their employment eligibility. It’s important to treat your child like any other employee, and you’ll want these forms on hand to comply with employment and labor laws.
Rule No. 3: Follow child labor laws
If your child is under 18, it’s important to make sure you’re following child labor laws for your state. These laws dictate what jobs they can and cannot do, as well as what days and hours are permitted for work. Laws can vary by state and sector (i.e., agricultural vs. non-agricultural), so check with the U.S. Department of Labor for detailed information.
Rule No. 4: Pay your child reasonable wages
Consult local job listings or job agencies to determine a reasonable wage to pay your children. They cannot be paid larger amounts just because you’re related. Also, be sure you’re paying them at least minimum wage, which is $4.25 an hour for employees under 20 years old. There are several stipulations regarding minimum wage, so check with the U.S. Department of Labor to make sure you’re following applicable laws.
Rule No. 5: Pay your child with actual wages
As tempting as paying your child with food, tuition or other items may be, it has to be legal. Consider paying your child via check or direct deposit, just as you would with your typical employees. Business owners can deduct their children’s wages, but only if they’re paid real wages for doing real work.
Rule No. 6: Withhold proper taxes
No matter their age, you must withhold income taxes from your child. Depending on your business entity (i.e., sole proprietorship, partnership, limited liability company or corporation), they may be subject to Social Security and Medicare taxes until age 18, and you may be responsible for the employer contribution. Consult the IRS website and check with your tax and accounting firm for confirmation of responsibilities.
Rule No. 7: Don’t pay wages in cash
If you pay your child in cash, there will be no paper trail for the IRS. As mentioned before, it’s best to pay your child by check or through direct deposit to their bank account, so there’s a record of payment. You also have the option to deposit their wages into a Roth IRA or a Section 529 college savings plan.
Follow the rules
Keep your kids busy during the summer by teaching them about the family business. Just make sure you treat—and pay—them like regular employees...and follow these seven rules to stay compliant with the IRS. Happy hiring!Back to issue