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Can I Hire My Children to Work in My Small Business?


Question: Can I Hire My Children to Work in My Small Business?
Hiring your children as employees in your small business certainly benefits your children. It also provides tax benefits for your business in several ways:
  • No employment taxes are required (Social Security and Medicare), if your business is not a corporation
  • You can deduct their wages as business expenses
  • Your children don't have to pay taxes, if their income is below the minimum.
  • You can put some of their earnings aside for an IRA (check with your tax advisor to see what kind is best).
Answer: Yes, you can hire your children to work in your business. But you must follow certain guidelines and requirements to make sure the expenses associated with this process are deductible. The requirements for having this arrangement accepted by the IRS and state employment agencies are:
  • Your business cannot be a corporation, but it can be a sole proprietorship, an LLC, or a partnership.

  • The work done by your children must be necessary and essential to your business. They can't clean the bathrooms in your office (not essential), but they could do filing or handing out flyers to local businesses.

  • You must pay them a reasonable wage for the type of work. If you don't want them to have all that money, put it in a savings account and use it to pay for things they need, like clothing or school supplies.

  • You must keep good records. Give them a paycheck like all your other employees, and record how the pay was determined. If you have a separate payroll account, pay them from this. Don't just give them cash.

In other words, treat your children the same as you would other employees (less the employment taxes), keep records, and use their pay for things they need.

Before you put your child to work in your business, be sure you understand federal and state child labor laws applicable to your business.

Disclaimer This article, and the information on this Guide Site, is intended for general information only. The author is not a CPA, tax attorney, or Enrolled Agent. Consult with your tax professional for information relating to your specific situation.

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