Labor laws involved with hiring your child
Nearly all private employers must follow the child labor provisions of the Fair Labor Standards Act of 1938 (FLSA). In many cases, state laws mirror their federal child labor counterparts. If they differ, you must comply with the higher standard.
Family-run businesses have certain exemptions from several of the FLSA provisions.
- Age restrictions. Minors under age 16 working in a business solely owned or operated by their parents can work any time of day and for any number of hours.
- Hours worked. While family businesses are exempt from the labor department’s restrictions on the number of hours the owner’s children are permitted to work, they must comply with state laws. Many states have working restrictions based on compulsory school attendance and high school graduation.
- Occupation. Family business owners cannot subject their children to hazardous working conditions or work hazardous jobs. However, children who work in agricultural jobs for family-run businesses are exempt from the FLSA rules on restricted hours and occupations.
It’s best to check with your state labor laws to ensure you’re staying in compliance with regulations.
As with any employee, provide the training or licensing they will need to do the job.
If it’s required by your state, you’ll also need to provide workers’ compensation insurance for them as you would any other non-family employees.
The tax benefits of hiring your child
You and your child may both have tax benefits when you hire them to work for your business. It’s best to consult with your accountant or tax preparer to maximize your tax savings.
To qualify for these benefits, you need to account for your child’s work, wages and employment records just as if they were a hired non-family member.
For example, that means you complete a Form I-9 or Form W-4 like any other employee. And that you pay your family members working for your small business via check, not cash, so it’s verifiable.
1. Tax deductions
As long as your kid is doing legitimate work, you may deduct their salary from your business income as a business expense, just as you would a non-child employee. (These deductions need to meet specific criteria.)
2. Payroll taxes
If your business is a sole proprietorship, a single-member LLC (you) that pays taxes like a sole proprietorship, or a husband and wife partnership/LLC, you do not have to pay payroll taxes or withholding for your child who is under age 18, including:
- Social Security tax
- Medicare tax
- Federal Unemployment Tax (FUTA tax)
Once your child turns 18, you will need to start remitting Social Security and Medicare taxes (also known as FICA taxes). However, the FUTA exemption extends up to age 21.
3. Your child’s tax benefits
Your child also has some tax benefits on the money they earn working for your business. The standard deduction is $12,550 per individual in 2021, so up to $12,550 of their earnings will be tax free.
Even if they are under age 18, your child can also contribute some of the money they earn to a Roth IRA, further reducing their tax bill.
4. Exceptions to tax benefits
If you have an S-Corporation or a C-Corporation business structure, you need to withhold and remit payroll taxes, including employee and employer contributions for Social Security, Medicare, and Federal Unemployment (FUTA) taxes.
The tax benefits for hiring your children are significant, but you’ll need to comply with the Fair Labor Standards Act (FLSA) regulations for employees.