Employment Tax Considerations When Hiring Children

Hiring your children for work in your sole proprietorship are tax deductible if handled correctly, here are the rules on employment taxes.

Generally, payments made for services rendered to a child by a parent’s business are subject to income tax withholding. But these payments may or may not be subject to employment taxes depending on who is the employer and the age of the child.

When a child works for a parent’s sole proprietorship or a partnership in which each partner is the child’s parent:

  • Payments for the child’s services are subject to income tax withholding. But, payments for the services of a child under age 18 are not subject to social security and Medicare taxes, while payments to a child over age 18 are.
  • Payments for the services of a child under age 21 are not subject to Federal Unemployment Tax (FUTA). Payments to children over 20 are.

In all other circumstances, i.e., the child works for the parent’s corporation, nonparental partnership or estate, the employer treats the child’s wages like those of any other employee.

Remember, to keep good records of hour worked and pay the child a “reasonable wage”.