Small Business The Benefits of Employing Your Children and the Tax Breaks Involved Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by TurboTaxBlogTeam Published Jul 1, 2024 - [Updated Aug 27, 2024] 3 min read Reviewed by Jotika Teli, CPA Lena Hanna, CPA It’s important to teach your kids to manage money wisely and have a solid work ethic. One way to accomplish this is by employing your child. Not only will this teach them essential skills, but it comes with tax breaks you can take advantage of as well. According to the IRS, if you are self-employed or own a business, you can employ your child and deduct their wages as a business expense which in turn reduces your taxable profit. Additionally, payments for the services of a child are not subject to social security, Medicare or FUTA taxes. This means you won’t have to pay FICA or FUTA taxes on the salaries you pay your children if they are under 18. Lastly, your child will likely be in a lower tax bracket than you, which means they will pay less tax on their income. Regarding federal income tax, you can hire and pay your child up to $14,600 for the year (per child), and they will not be subject to federal income tax for 2024. If your child has other income, even if you pay them up to $14,600, they may still need to file their own tax return if they exceed the filing threshold. There are a few rules and requirements to follow when employing your child. First, they must be a legitimate employee and perform actual work for the business. This means you can’t just pay them for doing household chores or running errands for you. They must have a specific job in your business and be paid a reasonable wage for the work they do. Next, you must keep accurate records of employment, including timesheets with the hours your child works and their payments. This is important to ensure you can prove to the IRS that the wages you pay them are reasonable and that they are actually performing work for the business. You also can help your child to do more with their salary by starting to save early for retirement with investments in a retirement savings account ( 401k or IRA), a Coverdell Education Savings Account, or a 529 plan. Employing your child comes with numerous benefits beyond just the tax breaks. It can teach them valuable skills that will serve them well in the future. They will learn about responsibility, time management, and the value of hard work. It can also give them a sense of pride and accomplishment, knowing that they are contributing to the family business. If you own a business, consider employing your child and taking advantage of the tax breaks that come with it. Not only will it benefit your business, but it can also be a great way to teach your child about work ethic and financial responsibility. With TurboTax Live Business, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish. Get direct access to small business tax experts who are up to date with the latest federal, state and local taxes. Small business owners get access to unlimited, year-round advice and answers at no extra cost, maximize credits and deductions, and a 100% Accurate, Expert Approved guarantee. Get started Previous Post What are Alston Awards and the Tax Implications? Next Post Using Form 8829 to Write-Off Business Use of Your Home Written by TurboTaxBlogTeam More from TurboTaxBlogTeam Leave a ReplyCancel reply Browse Related Articles Tax Tips Nanny and Housekeeper Tax Rules Deductions and Credits A New Baby and Tax Breaks Family Happy National Children’s Day! Here’s What … Family Life Events Series: How Having a Baby Can Save You Mone… Family Eight Tax Benefits for Parents Tax News All Grown Up: The Cost of Raising a Child [Infographic… Education Teachers Can Still Save with the Educator Expense Deduc… Education Who Should Take Education Tax Breaks: Parents or Studen… Family Love and Taxes: Tax Benefits of Marriage Tax Tips How to Get a Tax Break for Summer Child Care