Are There Tax Advantages to Hiring My Child?

Girl bottle feeding calf
21 Nov 2019

Do you have children under the age of 18 that work for you during the year? Do you pay your child with cash from your own personal account rather than the farm account? If you answer yes to both of these questions I would advise you to have your child be an employee of your farm. 

If a child is under the age of 18, they can earn up to $12,200, and no FICA or Medicare tax will need to be withheld from their paycheck. If the child earns under $12,200 then they more than likely will not need to file a tax return, and will be a payroll deduction on the schedule F of your tax return. If your child earns more than $350 of interest or dividend income, and total income is above $1,050, then a tax return will need to be filed for the child. 

Here are some important things to consider when hiring your child as an employee:
Compensation must be reasonable for the task(s) performed
Keep track of hours and task(s) completed similar to other employees on time card or calendar
Pay by check during regular payroll periods (once per week, bi-weekly, or monthly)
Have your child fill out a Form W-4, Form I-9, and employment verification form
At year-end, you must provide a W-2 to the child
Signing an employee contract and tasks commonly assigned is highly recommended to fully establish the child as an employee.

So how old should your child be before you start paying a wage? The IRS has accepted a child as young as seven or eight to be eligible to start collecting wages, but the assigned tasks must be able to be reasonably completed by a child of that age. For example, the IRS probably will not accept wages paid for seeding corn at the age of seven. Just remember to have the hours documented and the task performed in case the IRS was ever to perform an audit. 

Have your child help you out this year and get the deduction on your Schedule F of your tax return which helps reduce your self-employment tax and taxable income at the same time. Hopefully your child will learn some valuable lessons on the farm and you can avoid providing as much cash with no deduction for their summer activities. Sounds like a win-win!

Jason Grunewald
Written By: Jason Grunewald
CPA, Senior Tax Specialist