Most business owners around the world reap the benefits of hiring their children in the family business. It serves two-way benefits – one they can look for a good amount of tax benefits while filing annual returns, secondly incomes lie in their hands.
But, there are certain laws adhering to the hiring norms for children. These regulations vary from country to country and each business has to pay a reasonable amount of compensation to their children, according to the work done or prevailing rate in similar industries.
How the Idea of Hiring a Child Can Benefit Your Family Business?
Hiring your children in your family business is a great tax strategy that you may not be aware of before. Your child can avail of certain employment benefits which are not possible to avail without hiring.
Moreover, your child feels more confident and financially free while having salary crediting in his/her account. There are more benefits that leg up your children;
1. You Can Deduct Wages
When you hire your child as an employee, your business will be eligible to pay his/ her salary as other regular employees. It helps your business to pay fewer taxes as one of the expenses under the salary head added in your financial records.
2. Dependents Are Exempt from Payroll Taxes
When your child works in another business, he will be eligible to get payroll taxes. But, when you hire a child in your business, you are eligible for certain deductions such as Social Security tax, Medicare tax, workers compensation insurance, etc. Moreover, in some countries, businesses are eligible to pay unemployment tax on wages.
Hiring a child in business means you don’t have to pay unemployment tax. But the child is eligible to pay tax as an individual according to taxation authorities.
Keep in mind, in many countries liability for payroll tax has been changed. Especially in the case of a sole proprietorship or single-member LLC. If your company is still paying taxes or has any query regarding annual taxation you can approach tax service providers.
For instance, If you’re doing business in Romania, then hiring Romanian annual tax return experts will be a perfect decision. Professionals guide you in changing tax laws and how you can take advantage of new regulations to take your business to the next level.
Get an Idea of Your Child Age While Hiring
The age for hiring children varies from country to country and from job to job. Likewise, at some jobs, a child should be 14 years and for others, he must be 18 or above to be your employee. In other words, the regulation varies according to child labor laws in the country.
Get an Idea for Tax Eligibility for Child
Just to be eligible for paying tax, your child has to earn more than standard deduction eligibility norms. The slab for standard tax rate varies with the country’s tax authorities.
In the US 10%, 12%, 22%, 24%, 32%, 35% and 37%, income tax brackets fall from $0 to $518,401 (+) income. Same way in Romania, the tax rate bracket falls from 10% to 48% depending on the individual’s income.
If your child is earning less than standard bracket income, will be not eligible for zero income tax return filing.
Agin, only tax professionals in your country can help you to find the right bracket and taxable amount on individual income.
Get an Idea for Retirement Contribution
Every person who is a W2 employee, eligible to contribute to a retirement fund. Same way, when your child is earning, can contribute to an Individual Retirement Account (IRA).
Keep in mind, your child’s income must be eligible to meet IRA guidelines and contribution limits. And you cannot contribute more than you earned.
What If a Child Works as an Independent Contractor?
A child can work as an independent contractor, especially in a family-owned business. Instead of getting W2 employee benefits, his/, her income is considered as self-employed during the years he/she worked for.
Moreover, you will be liable to pay self-employment tax as per tax authorities.
Remember, if your child does things individually, considered an independent income. But if he/she works under your business shed, could be classified as employee’s work.
If you work partially as an employee and half-yearly as an independent worker, you need to club both periods’ income for total taxable income calculation.
Getting an Idea About Child Labor Laws Is Crucial?
Having an idea about child labor law is essential for every parent. You must have good knowledge about which work you can take your child before he/she will be at 14 or above.
It saves you from dealing with complicated state or country regulations. So, check out which jobs are available for
- Children under 14 years old
- Children ages 14 and 15
- 16 and 17-year-olds
- Children 18 and over
It helps in saving the children from various risks such as long-hour jobs, less wages, and dangerous work hazards that put a detrimental effect on children’s health.
The government of each country specified certain labor laws with age for the well-being of customers. Remember, agricultural jobs are exempted from hazardous occupation rules, so parents can take assistance from children in farming activities.
Hiring your child in the family business is a great idea. One way it boosts your child’s confidence and helps in handling business effectively from an early age.
You can also get innovative ideas from fresh minds to run a business and beat the cutthroat competition. In other ways, you can avail amazing tax benefits. All you need to do is understand the child labor law before hiring an employee.
Note: while assigning work to your child, always be careful and assign a reasonable workload. And the work should directly benefit your business.