School is out for the summer, which is an ideal time for your children to earn a little money and gain some experience at the same time. Bringing them in to work for you is a good idea, but first, keep in mind the following when employing family members:
Make sure the job is legitimate. Your children must be treated similarly to other employees. They should have real duties, file a W-4, submit their time reports, etc. You cannot pay your children for simple household chores through your company’s payroll.
Pay should be based on the services they perform. Your children’s pay needs to be similar and comparable to what your other employees performing similar work receive. You cannot pay your child to not show up to work; they need to perform their job duties just like your other employees.
Pay your children based on when they work. Do not pay your child ahead of the time they work. The IRS would consider this an allowance. They should be paid based on when they actually perform their duties. Since they are on your payroll, like your other employees, they should be paid when your employees are paid as well.
Follow the rules of payroll withholding. If your company is structured as a single member LLC, sole proprietorship, a multi-member LLC with the only members being the mother and father of the child, or a partnership with the only partners being the mother and father of the child, the following applies:
- Your employed child under the age of 18 would be exempt from FICA.
- Your employed child under the age of 21 would be exempt from FUTA reporting.
However, if your company is incorporated, or you are structured as a partnership with partners who are non-parents, or you are a structured as a multi-member liability corporation with LLC members that are non-parents, your employed child will not be exempt from FICA and FUTA reporting.
Federal withholding is always applicable for all employees. State law may exempt your child from state withholding. You should determine your state’s law for withholding state income tax.
Please contact our office if you have any questions.