Hire Your Kids and Save on Payroll & Income Taxes
- Do you operate your business as a sole proprietorship or a single-member LLC?
- Do your under-age-18 children help you in your business?
- Did you pay them for their work?
If your answers to the above questions are YES, don’t miss out on the exciting tax benefit of hiring your children to work in your small business AND save on Payroll Taxes!
THE TAX RULE
Unincoporated businesses who hire their own children under age 18 do not have to pay federal employment taxes on the children’s wages. These taxes are commonly referred to as payroll taxes which consist of 6.2% of Social Security Taxes and 1.45% for Medicare.
Both employer and employees must pay this portion of taxes on gross wages however in the case mentioned above, both the employer (the parent/owner) and the children (employee) are exempt from having to pay social security and Medicare taxes on the wages. Additionally, the employer is not required to pay FUTA (Federal Unemployment Tax Act) tax on these wages. Most states also exempt such wages from state unemployment tax (SUTA).
In addition, your child can use their 2012 standard deduction to eliminate their tax liability on up to $5,950 of their gross wages. So they can make this money TAX FREE!
Most importantly, hiring your children is a wonderful way to teach them Money Management and Work Ethic – two of the most valuables life lessons in this ever-changing economy.
To take advantage of this tax benefit, wages must be paid on a Form W-2 NOT Form 1099.
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