And how to ensure your accountant approves.
Training kids on how to earn and use money wisely is an important part of parenthood. But what kind of jobs are available for an eager 10-year-old? Not many, unless…
You employ them yourself. Yes, you heard that right. No, there’s no issue with child labor.
The goal is to find them a task or list of tasks that they can do (according to their skill level) and pay them an appropriate rate for their time.
Now, how to keep track of this in your bookkeeping AND make sure everything stays above board? Here are some simple steps to take:
- You report your child’s work as Outside Labor/Other Expense on a Schedule C (which should be familiar if you’re a Single Member LLC). Then you pay your kid–cash is best.
- You DO NOT put them on payroll or even call it payroll. You DO NOT pay them directly out of your S Corp. And DO NOT create a W-2 for them either.
But why? Why not treat them like any other employee?
First, because you would never give a minor a W-2 out of your business. Second, because there is zero requirement to withhold FICA, SUTA, FUTA, or Worker’s Comp on your own child. Circular 230* actually says you don’t have to.
So what kind of jobs are appropriate for your children to do for your business? Ideally, ones that help you out and save you a little money from hiring out to another company. Classic examples include:
-Shredding papers, collecting garbage, or sorting recycling
-Sweeping or vacuuming floors and cleaning windows
-Dusting and organizing shelves (especially in storage or a back room)
-Answering phones and taking messages if they’re old enough and well trained
Compensation should always be fair (they are working, after all) and reflect the difficulty of the jobs. Pay your kid $100 a month to shred paper? Perfect. Pay them $1,000? Too much.
This kind of financial move helps you set an example about income for your kids and make sure that some of the wealth you’re trying to pass on to them actually makes it into their bank accounts.
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*Circular 230 is a set of regulations by the U.S. Treasury Department that governs our conduct as tax professionals practicing before the IRS.