Dear Friends of RC Jones & Associates, Inc.,

Does your child help out at the office during school breaks or over the summer? If so, it may be time to consider officially hiring them. Not only can this reduce your overall family tax burden, but your child may also be eligible for employee benefits, such as health insurance or retirement contributions.

Why Hire Your Child?

The tax benefits of putting your child on the payroll have become even more compelling. One key reason is the “kiddie tax” rule, which taxes unearned income—such as interest, dividends, and capital gains—at the parent’s tax rate once it exceeds a certain annual threshold (currently $2,500 for 2024). Unearned income above this limit is subject to your tax bracket, potentially leading to a higher tax bill.

The kiddie tax applies to children under 19 years of age or full-time students under age 24, unless their earned income exceeds half of their annual support. This means many college students are affected, making it important to strategically plan how income is received and taxed.

Earned Income is Exempt from the Kiddie Tax

However, wages paid to your child for actual work are exempt from this tax. If you officially hire them to work for your business, they can enjoy tax-free income up to the standard deduction for the year ($13,850 for 2024). Beyond the tax benefits, your child may also be eligible for fringe benefits such as health insurance, life insurance, and retirement plan contributions, if your company offers these perks.

Payroll Tax Breaks

Another significant advantage applies to payroll taxes. If your child is under 18 and works for you in an unincorporated family business, their earnings are exempt from FICA taxes (Social Security and Medicare). Additionally, they’re exempt from FUTA taxes (unemployment) until age 21. These payroll tax exemptions can lead to substantial savings for self-employed individuals and family-owned partnerships.

If you’re thinking about hiring your child or would like more information on how this arrangement might benefit your family, we’re here to help. Contact RC Jones & Associates at (816) 792-9966 to schedule a meeting with one of our tax experts. We’ll walk you through the best options for maximizing your family’s tax savings.

Very truly yours,
RC Jones & Associates, Inc.