One of the IRS requirements is: You must complete and file IRS Form W-2 showing how much you paid your child.
You can deduct the wages and salaries you pay your children if they
are employees. See the
information below.
If you run your own business, your children can be a great tax
savings device. If you hire
your children as employees to do legitimate work in your business, you may
deduct their salaries from your business income as a business expense. Your child will have to pay tax on
the salary only to the extent it exceeds the standard deduction amount for the
year. Moreover, if your child is under 18, you won’t have to withhold or pay
any FICA (Social Security or Medicare) tax on the salary (subject to a couple
of exceptions).
-
First
of all, your children must be bona fide employees.
Their work must be ordinary and necessary for your business, and their pay must
be for services actually performed.
-
When
you hire your children, it is advantageous (tax-wise) to pay them as much as
possible. That way, you can shift as much of your income as possible to your
children, who are probably in a much lower income tax bracket. However, you
can’t just pay any amount you choose: Your
child’s total compensation must be reasonable.
- Finally, you must comply with most of the same
legal requirements when you hire a child as you do when you hire a stranger.
This means you must fill out IRS Form W-4 and complete U.S. Citizenship and
Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You
must also record your employee’s Social Security number. If your child doesn’t
have a number, you must apply for one. In addition, you, the employer, must
have an Employer Identification Number (EIN). If you don’t have one, you may
obtain it by filing IRS Form SS-4. You must also complete and file IRS Form W-2
showing how much you paid your child. For details, refer to the the Hiring Employees FAQ at the Nolo website.
To read the entire article: Why It's Tax Smart to Hire Your Children | Nolo.com
