Hiring your Children at the Family Business
Have you been thinking about hiring your children for the family business? It can be a win-win situation for both of you, with the potential tax savings and your child being able to save money for their next big steps in life–like college or a wedding.
We’ll be going over the benefits of having your children working for you in this article–as well as some of the laws you may want to keep in mind when hiring your child or children to work for your small business.
Starting working young can help them develop a strong work ethic that will create a solid foundation for the rest of their life. Whenever a teen gets a job, they learn to improve time management and their organizational skills, they learn money spending habits, and how to save it. They also get an opportunity to earn their own money which can help with building confidence and independence.
Some parents can be hesitant about overburdening their child–but who would be more understanding of your child’s possible needs than you would be? There’s also evidence that’s shown it has proven beneficial for teens to work. Linking working early on with a more successful life down the line.
Tax Advantages for All
Children that work for you have a possibility of keeping more of the money they earned. This is in cases in which your business is a sole proprietorship, a partnership owned by you and your spouse–or an LLC that is treated like such for tax reasons.
The IRS states that if your child is eighteen years old or under and works for your unincorporated family business–here in Florida their wages are exempt from some taxes. The Social Security Tax, Medicare, and Federal Unemployment Tax Act (FUTA) taxes are not pulled out until they turn 18. Once they turn twenty-one, they will pay Social Security and Medicare taxes, but not FUTA taxes. Income taxes, however, regardless of their age are still withheld.
Business owners hiring their child may qualify for certain business tax deductions like the one that reduces their federal income tax bill and may also lower their self-employment and state income tax bills if able. It’s deducted as a business expense and equals the number of the wages you pay your children to work for your business.
Fair Labor Standards Act + Hiring your Children
The FLSA or Fair Labor Standards Act was an important labor law made in the United States, creating the historic rights to minimum wage and overtime pay. It also includes a lot of important provisions about children’s labor.
There are also a lot of exemptions for family-operated businesses when it comes to these laws. Like unless it’s a position where minors under eighteen cannot work, age restrictions/rates generally will not apply. Though there are likely differences between Florida state laws and federal laws that should be looked into.
You must be honest about having your children work for your family-owned business when it comes to filing your taxes and other important legal and financial documents. The IRS knows that the tax breaks create an incentive for rule breaks to try–and are actively trying to catch them.
Let us at Thompson Law help you with all of your important legal queries when it comes to both business and family–we’re ready to help with our experts.