If you own a business, you often find the summer months are the busiest. Thus, you need as many employees as possible to help shoulder the workload. If your children are looking for summer work and the chance to earn extra money, this can present a win-win situation for everyone. However, if you have never before hired your kids to work at your business, you probably have questions about taxes and other related areas. To make sure you take the right steps along the way, here's what you need to know about hiring minor children for a summer job.
Issue Your Kids a W-2 Form
When you hire your kids for the summer, treat them just as you do other employees. This includes issuing them a W-2 form. Remember to keep accurate records so that their work hours and job duties are documented. If you have a business that is not incorporated, minor children's wages are generally exempt from Social Security, Medicare, and also FUTA taxes. However, always check with your CPA to find out what applies to your individual situation.
Business Tax Deduction
As long as you can prove to the IRS if necessary that your children were hired for a legitimate job and they were paid a salary considered to be reasonable for the position, you as a business owner could qualify for a business tax deduction. This is important, since this means your federal income taxes, state income taxes, and self-employment taxes all will be reduced come tax time.
Building a Retirement Nest Egg
Even though your children are still relatively young, hiring them for a summer job may be the chance for you to help them start building a nest egg for retirement. Depending upon the type of retirement plan offered by your business, and which employees can qualify for contributions, you may be able to help your children set up an IRA plan and contribute some of their earnings towards retirement. Consult with your CPA for details.
Why Hire Your Kids?
While you know there are certain tax benefits you may be able to take advantage of by hiring your minor children for the summer, there are also other reasons why you as a parent would want to give your kids a job at the family business. For example, giving your kids a job will help teach them responsibility, as well as give them valuable experience they can use later on when applying for other jobs. Along with this, having a summer job also lets your children gain an understanding of the types of work they like or don't like. In fact, as your children spend their summers working at your business, they may decide they want to continue in the family business as they get older.
What Types of Jobs Should I Give My Kids?
As for the types of summer jobs your kids can have at your business, this can run the gamut. For many kids, summer jobs entail doing quite a bit of manual labor, such as mowing and keeping the grounds of your business looking great. Other kids may find they like stocking shelves or assisting in the unloading of deliveries. If your kids are mature for their age and have caught on quickly to the day-to-day functions of your business, you may even trust them enough to let them answer phones and provide limited amounts of customer service.
Benefits of Hiring Your Kids
As a parent, you want the very best for your kids. Once you decide to give your kids summer jobs at your business, both you and your kids will reap numerous benefits. First, you won't have to spend your summer days worrying about what the kids are up to now that school is not in session, since they will be with you at your business. Another excellent benefit of hiring your kids for the summer is that it will give you the chance to act as a mentor. By giving your kids the wisdom of your many years of experience, they will have a better understanding of not only your business, but also just how hard you have worked for your family over the years to give them a good life. In fact, what started out as a simple summer job may end up letting you and your kids bond in ways you never imagined.
Are There Minimum Age Requirements?
Actually, the IRS does not have any minimum age requirements when it comes to kids being hired to work at a family business. However, this does not mean you should immediately decide to put your newborn or toddler on the company payroll! Remember, you are still required to hire your kids for jobs that are appropriate for their age. To stay out of trouble with the IRS, your CPA will suggest you choose age-appropriate jobs for your kids, pay them a reasonable wage, and have a simple document in place that outlines their responsibilities. The duties for the summer jobs should always be directly related to your business, and not include any personal services. Thus, while it's fine to hire your kids to mow the grass at your business, it's not okay to have them doing this at your home on company time.
Finally, once you iron out all the tax details with your CPA, you and your kids may discover that hiring your minor children for summer jobs is a rewarding experience for everyone. Your kids will benefit by earning money, gaining job experience and learning about responsibility and why it's important to do their best at any type of job. As a parent, you will have peace of mind about your kids’ whereabouts, gain tax benefits as a business owner, and have the chance to mentor what may be the next generation for your family's business.