The other evening, after a busy Bourke Accounting tax season day, I didn’t feel like cooking (I don’t ever feel like cooking, but now I have a legitimate excuse). I stopped at one of my favorite take-out spots and was surprised to find a child behind the counter. She looked about 11 years old and she was courteous, accurate and efficient. I’ve been waited on by 30-year old adults who weren’t as together as this kid. As this has always been a family business, it finally dawned on me why people have kids in the first place. Free labor, right?
Actually, no. As it turns out, family businesses must pay their kids just like they would any viable person for the same work. However, as pointed out by The Kiplinger Tax Letter (Vol. 95, No. 2), there are some benefits to hiring your underaged offspring. Namely, “hiring your family can lower your payroll tax bill.”
If a wife-husband partnership hires their kids, there is no Social Security or Medicare tax due. In addition, “federal unemployment tax isn’t owed on their salaries until they reach 21” (Kiplinger). If the kids are under 18, these wages are “tax-deductible to your business, tax-free to [the children]…and you still get to claim [the children] as dependents” (Entrepreneur.com). That seems like a pretty sweet deal, actually.
Entrepreneur.com goes on to lend a vaguely sinister air to child labor when it is offhandedly stated that the IRS allows children as young as 7 to work for their parents. I would feel a little weird if a 7-year-old rang me up at the corner store (are 7-year-olds even potty-trained?), but according to the United States Department of Labor, this is indeed allowed. A parent can get their kids working at any age, as long as the job isn’t “mining, manufacturing or hazardous jobs” (Webapps.dol.gov).
Another interesting point about hiring family is that your better half and parents may also cut your payroll tax bill. According to the IRS, if you hire your spouse or parent, neither is “subject to the Federal Unemployment Tax Act.” While that’s a plus, I’m still left questioning the wisdom of hiring family.
I love my family, I really do, but working with/for them? Ah, thanks, no. I once played in a band with my brother and ended up threatening his physical person with a bass guitar, so you can see why this wouldn’t work for me. I’m not the only one who doesn’t think working with family is the best idea. USNews.com puts it very nicely: a round-the-clock viewing of your other half could transform the one you love into the one you can’t escape. Also, even with tax breaks, the headache of trying to convince your mother/employee that you’re not an infant anymore and that you know what you’re doing could be very trying.
If you own your own business, the idea of hiring family could be very attractive. However, before you do that, why not talk to a Bourke Accounting professional first? Perhaps, when your Bourke Accounting tax preparer and bookkeeper show you ways to save money that don’t include your payroll tax, you might rethink the pros and cons of working with your blood. Bourke Accounting experts aren’t family counselors, but listen to their advice and you probably won’t need one.
Written by Sue H.