Hire your kids to take
advantage of tax savings
Child Employed by Parent
Did you know that hiring your kids can save you money in taxes? Another advantage is also that the money stay in the family and teaches your kid responsability.
Payments for the services of a child under age 18 who works for his or her parent in a business are not subject to social security and Medicare taxes if the business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments to a child under age 21 who works for his or her parent in a business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payment to a child are subject to income tax withholding, regardless of age.
The wages paid to a child are subject to Income Tax Withholdings as well as Social Security, Medicare, and FUTA taxes IF the child works for:
- A corporation, even if it is controlled by the child's parent,
- A partnership, even if the child's parent is a partner, unless each partner is a parent of the child, or
- An estate, even if it is the estate of a deceased parent.
One Spouse Employed by Another -The wages for the services of an individual who works for his or her spouse in a business are subject to income tax withholding and social security and Medicare taxes, but NOT to FUTA tax
The wages of a spouse are subject to income tax withholdings as well as Social Security, Medicare, AND FUTA taxes if he or she works for:
- A corporation, even if it is controlled by the individual's spouse, or
- A partnership, even if the individual's spouse is a partner.
Parent Employed by Child - the wages for a parent employed by his or her child in a business are subject to Income Tax Withholdings, Social Security and Medicare Taxes. Wages paid to a parent employed by his or her child are NOT subject to FUTA tax, regardless of the type of service provided.
Social Security and Medicare taxes do not apply to wages paid to your parent for services not performed in your business, but they do apply to domestic services if both the followed conditions are met:
Your parent cares for your child who lives with you and is under 18 or requires adult supervision for at least 4 continuous weeks in a calendar quarter due to a mental or physical condition.
You are a widowed, divorced, or married to a person who, because of a physical or mental condition, cannot care for your child during that period.