Employing Children in the Family Business and Paying Zero Payroll Taxes Legally.

One benefit of running your own business is the ability to hire your children. Payroll taxes differ from those of other employees. The following details may help you identify some differences to consider.

Benefits of Employing Children in the Family Business

You get the following tax benefits.

• They do not require income tax withholding if paid under the standard deduction until they turn 21.

• They do not require Social Security and Medicare withholding until they turn 18.

• Are not subject to Federal Unemployment Tax Act (FUTA) until the child turns 21.

• You can pay them up to their standard deduction to receive the benefits above, but the standard deduction for dependents does move on a sliding scale so it is best to set up an appointment with us to learn more.

• You can deduct your payments to them as wages paid by the business. Lowering your taxes while your children pay no taxes at all. This also reduces your self employment taxes as well, which is an additional 15.3% of tax saved.

• You can then invest their earnings in a ROTH IRA account for additional tax benefits.

Stipulations

1. A business employing children in the family business must be a sole proprietorship or a partnership with just the child's parents as partners.

2. If the business is a corporation or a LLC taxed as a corporation then all wages paid are subject to income tax withholding, Social Security taxes, Medicare taxes, and Federal Employment Taxes.

3. If the business is owned in a trust regardless of the relationship to the current/original owners of the trust all children paid are subject to income tax withholding, Social Security taxes, Medicare taxes, and Federal Employment Taxes regardless of age.

The child may still have to pay state income taxes and there is different thresholds for each state. A dependent's standard deduction changes and is not the same as that of a regular tax payer typically. Different rules may apply if you have a LLC.

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