As a small business owner, you may consider hiring your children to help with your business, especially during the summer months. However, if you choose to hire them as employees, it is important to understand the payroll taxes that go along with this decision. Learn more about how to properly pay your child and handle payroll taxes correctly. There are various tax rules that apply when hiring your children as employees. Generally, you are allowed to pay your child a fair market wage for their services. The IRS defines “fair market wage” as the amount of money an individual would receive for performing similar services for someone else. For example, if you hire someone else to do the same job, you must pay your child at least the same rate. Your children’s withholding on their paychecks will be determined by how your business is set up and files its tax return. This is will it gets really cool! If set up correctly, you can max your business deductions and start a retirement account for your children all while still reporting zero taxable income for your children! If you decide it is beneficial for your business and family dynamic to hire one of your children as an employee of your company, it is important that you understand all the payroll taxes associated with this decision. To ensure compliance with federal laws regarding employment of your children please contact me so that all paperwork and payments are done properly according to applicable regulations. With proper planning and understanding of these laws and regulations you can successfully employ your children while running your own small business!
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