HOW TO PUT YOUR KIDS ON PAYROLL

By now, you have seen all the viral Reels and TikToks focused on putting your kids on your business’s payroll. Some even go so far as to offer advice on investing their wages to make them millionaires by the time they are thirty years old.  As with anything you see online, it’s important to do your research before trusting these accounts, especially for financial advice.  Lucky for you, I am going to break this down for you!

HOW IT WORKS

Each taxpayer is entitled to a standard deduction of $14,600 (for 2024; this changes yearly!)  This means that the first $14,600 of income is not taxed.  Assuming your son or daughter has no other sources of income, if you pay them less than $14,600 for the year in wages, not only will they not have to pay income taxes on that amount, but you (as the business owner) will get a deduction for their wages.

Win, win?

Kind of.

You have to consider payroll taxes.  

As long as your business is not taxed as an S-Corp, any wages paid to your children under 18 years old are exempt from federal payroll taxes.  However, if your business is taxed as an S-Corp, you do have to pay payroll taxes on their wages.  There is a time and place when the payroll taxes outweigh any tax savings, so it’s important to consult with your CPA before putting your children on your payroll.

Once you have determined that it makes financial sense to put your kids on payroll, you need to make sure that you are doing everything correctly!

1. Check your state’s laws!  Some states have specific labor laws outlining how many hours children can work, and what jobs they can complete.
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2. Create a job description!  Compile a list of age-appropriate jobs for your child. The keywords here are AGE-APPROPRIATE!  Your three-year-old shouldn’t be tasked with writing thank-you notes to your client!
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3. Determine a fair pay rate!  Based on the job description you create for your kiddo, do some market research to determine a fair pay rate based on local comparable data.
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4. Set them up on payroll!  We love GUSTO for payroll because everything can be done digitally (no paperwork needed!)
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5. Track their time and pay them!  Make sure that you track the hours that your kiddos work and note the tasks they worked on.
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6. Send them a W-2!  If you use a payroll service (like Gusto), they will handle this for you!  

IDEAS FOR AGE-APPROPRIATE JOBS FOR YOUR KIDS:

Below are some ideas for jobs that your kiddos can perform for your business (depending on their age!)  

• Cleaning your office 
• Packaging client gifts
• Organizing your office
• Putting together office furniture 
• Helping with reels or other content
• Assisting you on a photoshoot
• Proofreading your website (or emails, blogs, etc.)

Every business is different, so always reach out to a CPA for guidance if you have any questions!