Employing Your Children
Create real work, real pay, and clean records.
Structure age-appropriate work, reasonable compensation, payroll, and documentation around the family business and the rules that apply to its entity.
The Situation
You own a family business and want to involve your children in legitimate work while evaluating whether the arrangement may create tax, savings, or work-experience benefits under your family’s facts.
Advisory Evaluation
We evaluate entity type, ownership and family relationships, the child’s age, applicable federal and state employment rules, and the proposed duties and compensation. Any payroll-tax or income-tax treatment depends on those facts and current law.
The Tradeoffs
This strategy adds administrative burden, including payroll processing, time tracking, and potential state labor-law compliance. The work and pay must be genuine and supportable; nominal tasks or unreasonable wages can undermine the intended tax treatment.
Documentation Needs
Requires formal job descriptions, W-4s, I-9s, detailed timesheets, payroll records, and proof that compensation is paid into an account controlled by the child (or a custodial account).
Professional Coordination
Requires coordination with your payroll provider to ensure correct tax withholding and reporting, and potentially with financial advisors if the wages are used to fund a Roth IRA.