Back to top

Blog

Click here to go back

Do I have to pay payroll taxes on my kids hired to work in my business?

Posted by Tim Posted on Aug 09 2019

Payroll Taxes on Family Members

Without fail, I am asked at least a few times a year whether a business owner can hire their own children to work in the business...and if so, what are the tax benefits of doing so.  There are obvious deductions that go along with hiring your children - deductions at the business level.  But you'll want to make sure the pay is befitting the work.  In other words, don't just pay them for doing nothing.  Have a job for them and pay them...wages that are seen as "fair" in the eyes of the IRS, should pass muster.  The tax benefits of hiring your children are obvious in most cases - your business income will decrease, thereby reducing your own tax liability.  But is there anything else?

 

I heard I could hire them and not pay payroll taxes?

This is TRUE with one asterisk - you must be operating as either a sole-proprietor OR a Single-Member-LLC (SMLLC) that has NOT elected to be treated as a corporation.  In other words, as long as you aren't incorporated, you can avoid paying some of those ugly payroll taxes on your children's wages.  In fact, under the family employment rules, wages paid to your children and spouse are exempt from unemployment taxes while wages paid to your children are ALSO exempt from the FICA/Medicare withholding taxes, too!  (Wages paid to your spouse are NOT exempt from the FICA/Medicare)

Have questions?  Message me or leave a comment below.