Summer is here, and soon most children will be on vacation. If you own or manage a business, have you thought of hiring your children for a summer job?
If you do it right, it can be a win-win situation for everyone. The kids will earn some money and gain valuable real-life experience in the workplace. The business will have some extra help during summer months when other staff are on vacation. If it’s a family business, there might even be some tax advantages as well.
Generally, if your child is doing a valid job and the pay is reasonable for the work, your business can claim a normal tax deduction for wages paid. Your child will probably pay no or very little income tax on the wages earned. And if he or she is under age 18 and your business is unincorporated, neither your child nor your business will have to pay FICA payroll taxes in most cases.
To make the arrangement work, follow these guidelines:
• Make sure it’s a real job, no matter how basic or simple. It could be office filing, packing orders, or simple production activities.
• Treat your child like any other employee. Expect regular hours and appropriate behavior. Don’t show favoritism, or you risk upsetting regular employees.
• To avoid any IRS challenge, make sure the pay is reasonable for the work performed. You might want to prepare a written job description for your files.
• Keep records of hours worked just as you would for any employee. If possible, pay your child using the normal payroll system and procedures.
• Keep family disputes out of the workplace. If the arrangement is not working or is disrupting the business, help your child find a summer job in some other business.
David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.