You’ve heard that you can’t have your cake and eat it, too. But hiring your own family is one case when you can. Pay your minor or adult children to work for your business, then write it off as an expense.
Many people are confused about whether it’s legal to hire their children and grandchildren. Follow my advice to satisfy both the IRS and employment laws – while saving on your own taxes. Assuming it’s a true payment for services performed (and the paperwork is handled properly) it’s totally legal and acceptable to pay family members.
Minor Children Save the Most Taxes
Child labor restrictions don’t apply to a parent (unless it’s in manufacturing, mining, or any hazardous occupation defined by the Department of Labor) – even under 16. I hired my own daughters from the ages of 7 and 9 without a hitch.
You need not pay withholding income taxes, payroll taxes (including Social Security) and Workmen’s Compensation (in most states) until the child turns 18. Just remember to complete quarterly payroll tax returns, as you must for any employee. Forget about paying federal unemployment taxes until the child turns 21.
However, if your business is an S or C Corporation, you must pay Social Security and Medicare taxes regardless of their ages.
