{"id":3111,"date":"2017-09-13T22:48:36","date_gmt":"2017-09-13T22:48:36","guid":{"rendered":"http:\/\/www.ua-cpas.com\/?p=3111"},"modified":"2019-01-11T05:37:36","modified_gmt":"2019-01-11T05:37:36","slug":"paying-wages-to-children","status":"publish","type":"post","link":"https:\/\/www.ua-cpas.com\/blog\/index.php\/2017\/09\/13\/paying-wages-to-children\/","title":{"rendered":"Should I Pay My Child Wages?"},"content":{"rendered":"
\"\"
Children Running Office<\/figcaption><\/figure>\n

Does It Make Tax Sense to Pay Jr?<\/b><\/span><\/p>\n

Your child probably knows a lot more about technology\u2014from designing a website to posting on social media\u2014than you ever will. At many family businesses, Junior may already be helping with a variety of digital and other tasks.<\/span><\/p>\n

Have you considered paying your kids for their work? Besides motivating them, putting kid(s) on the payroll is an attractive way to transfer assets to them while saving taxes. You might be able to help them fund their college costs or purchase a home while getting a tax break. <\/span><\/p>\n

That\u2019s because your company can take a deduction for the salary you\u2019re paying them. The kid\u2019s tax bracket will almost certainly be lower than yours, so the family unit saves thanks to the difference in the tax rates. <\/span>It\u2019s up to you to match their skills with your business\u2019 needs, but we can help with some of the tax aspects.<\/span><\/p>\n

Goodbye<\/b> <\/b>to Payroll Taxes<\/b><\/span><\/p>\n

Are your children under 18? And are you a sole proprietor, a single-member LLC, or operate a partnership where the only members are you and your spouse? If so, congrats\u2014your children won\u2019t have to pay Social Security, Medicare taxes or NJ unemployment if they work for you. <\/span>If your child\u2019s earned income\u2014generally salary, as compared to interest and dividends, is less than the standard deduction of $6,350 in 2017, he won\u2019t have to file his own income tax return.<\/span><\/p>\n

What are my Tax Savings?<\/b><\/span><\/p>\n

Let\u2019s assume, you pay your high school son, your computer tech, a salary of $6,300. He will pay no US or NJ income taxes on this salary. If you are in a high tax bracket, your US and NJ tax <\/span>savings can be as high as $3,000!<\/span>\u00a0 <\/span>And he will not have to file a tax return.<\/span><\/p>\n

What If My Children Are Over 18?<\/b><\/span><\/p>\n

Now let\u2019s assume that your college daughter does the graphics and social media for the business. Or your child is under 18 but you own a \u201cC\u201d or \u201cS\u201d Corporation. You pay her $15,000. These wages are subject to Social Security & NJ unemployment. Her federal and N.J. income taxes plus the payroll taxes will be about $3,500. However, at your higher tax bracket, the federal and NJ income tax savings could be as high as $7,500. So the net tax savings to the family may be $4,000. Still a good deal! <\/span><\/p>\n

The Retirement Savings Credit Saves More\u2026<\/b><\/span><\/p>\n

If your child over 18 who is not a full-time student contributes up to $2,000 into a Roth or traditional IRA, she will receive a Retirement Savings Credit of up to 50%. In our example, her tax burden of $3,500 will be only $2,600. And the family saves $4,900. A homerun!<\/span><\/span><\/p>\n

The Bottom Line<\/b><\/span><\/p>\n

Hiring your kids can be a good experience, while potentially offering some nice tax breaks. <\/span>There are some twists: <\/span><\/span>you must pay the salary in that tax year, and the pay must be \u201creasonable\u201d. If your kid sweeps floors, forget about paying enough to cover his college costs and then trying to deduct it as salary expense. <\/span><\/span>The state tax implications may differ from the federal. Before you go ahead and pay your child, it is a good idea to consult with your tax advisor. It could end up saving you money later. <\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Paying Wages to Children working in the business has many tax advantages<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,10,14,39,20,22,23,24],"tags":[167,195],"class_list":{"0":"post-3111","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-small-business-forum","7":"category-hot-topics","8":"category-medical-practices","9":"category-payroll-taxes","10":"category-staffing-agencies","11":"category-tax-tips-for-individuals","12":"category-taxes","13":"category-taxes-medical-practices","14":"tag-payroll-taxes","15":"tag-tax-tips","16":"entry"},"_links":{"self":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=3111"}],"version-history":[{"count":2,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3111\/revisions"}],"predecessor-version":[{"id":3436,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3111\/revisions\/3436"}],"wp:attachment":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=3111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=3111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=3111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}