Quiz: Hiring Your Children for the Summer

If you are thinking about paying your own child to help you with your family child care business this summer, take this quiz to avoid making mistakes.

#1: If your child is under age 18 you must withhold and pay Social Security/Medicare taxes on the amount you pay them.

True

False

#2: Your child does not have to pay any federal income taxes if he/she earns less than $12,950 in a year and is under age 18.

True

False

#3: You do not have to pay any federal unemployment taxes if your child is under age 21.

True

False

#4: Federal law prohibits you from hiring your own child to do work for your business if he/she is under age 14.

True

False

Answers

#1: False. You need only withhold Social Security/Medicare taxes if you pay your own child, who is age 18 or older, and your spouse.

#2: True. $12,950 is the rate for 2022.

#3: True.

#4: False. There is no federal child labor law that prohibits you from hiring your own children under age 14. However, your state labor laws may prohibit this, so check with your state department of labor.

Hiring your own children under age 18 to help you with your business makes good financial sense. You can expect to save $30-$40 in taxes for every $100 you pay your child. If you do so, you need to follow certain rules to ensure the IRS does not treat these payments as a non-deductible allowance.

Note: These answers assume you are operating as a sole proprietor (self-employed). If you are established as a corporation, you must withhold Social Security/Medicare taxes, pay federal unemployment taxes and your child must report the amounts as taxable income.

Tom Copeland - www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/fairfaxcounty/6312400554

For details on how to fill out all the federal tax forms when hiring family members, see my annual Family Child Care Tax Workbook and Organizer.