The kids have been out of school for almost a month now. You may have put them to work for the summer on the family farm or ranch. Sometimes kids work for free, work for cash, or maybe calf shares. Did you know you can pay them a wage and not have to pay payroll taxes on those wages?  And it’s a business deduction!

IRS rules state that if a child is under the age of 18 and hired by their parent(s) operating a business as a sole proprietor, the child can be paid a wage that is not subject to payroll taxes. This means their wages are not subject to social security or Medicare tax and therefore no payroll tax payments need to be paid to the IRS. This rule also applies to parents who are the only owners in a partnership and want to hire their children.

Consider paying a reasonable wage based on the child’s age and responsibilities assigned to them. Just like with any other employee, make sure their work hours are logged in the event the IRS asks for supporting documentation. As for paying your child, checks can be written to the child throughout the summer or year. Just make sure payment amounts are tracked as there is one filing requirement at year end.

A W-2 form must be issued to the child by January 31st of the following year for the amount of wages paid. If wages paid are less than the standard deduction of $13,850 for the 2024 tax year, and there is no other income to consider, the child pays no tax and will not be required to file a tax return.

Not wanting the child to have access to all the cash? One option is to set up a Roth IRA account for them and start saving for retirement! As long as there is earned income, an individual can establish a Roth IRA account regardless of age.

Visit with your tax professional at KT to learn more about this topic. As for getting your kids working this summer, that’s up to you!