➡️ Small businesses hiring their own kids is a popular topic among social media influencers, but here we answer some questions to avoid misinformation about such posts.
Must-Know Issues
🔹Wages can be deducted as a business expense, which can lead to significant savings for your small business. In 2024, the standard federal deduction for single filers is $14,600. If your child’s income falls within the limits, they may not owe any income tax, which can be a win-win.
🔹Payments to children can avoid Medicare and Social Security taxes, depending on the child’s age and the legal structure of your business, according to the IRS.
🔹When your child has “earned income,” meaning wages from employment, kids can make contributions to a Roth individual retirement account, which can be very beneficial for younger savers.
🔹Children get a triple tax advantage: They generally pay little or no tax on contributions, plus growth is tax-free and withdrawals are generally tax-free in retirement. Keep an eye on the 2024 contribution limit, however, which is your child’s total income or $7,000, whichever is less.
You may also like: Do you Know about the Tax Advantages of the HSA Accounts?
Points to Consider Before
🔸It’s important to be aware of state and federal labor laws, as well as tax rules, as some states prohibit hiring children under 14 under any circumstances.
🔸If you hire them, your kids must perform actual work for the company, and their compensation must be reasonable to match their duties.
🔸At Wave Tax we always suggest keeping a record, as it serves as a valuable resource if any questions arise about your child’s employment.
🔸Payments to children are subject to income tax withholding, regardless of age, and you will receive a full refund of taxes paid if they are below the standard deduction.
✅ Do you have any questions? At Wave Tax we provide you with the financial and tax advice to maximize your business or company’s profits.
📩 Contact us at info@wavetax.us