We are well into summer. By some measures it's about half over. At the start of the season, many parents of teenagers from Minneapolis-St. Paul to across the river in Wisconsin likely were pressing their offspring to go out and get jobs. In some cases, especially if the parents have their own businesses, jobs were created for sons or daughters.
There can be a lot of upside to hiring a young person for a summer job. They learn the necessity of work and the value of their labor. Taking on the extra help can have business implications, though, including those related to tax matters. Following is a quick set of questions and answers to consider courtesy of AccountingToday.vom.
Does a working child affect my ability claim the child as a dependent? In nearly all cases, the answer is no. If you are providing more than half the cost of a child's support, you can continue to claim dependency until they turn 19. If they are full-time students, the age rises to 24.
How much should my working child withhold on the W-4? The answer here depends on how much the child is expected to earn. If the income threshold for mandatory return filing isn't going to be met, it might not be necessary to withhold. Taxes will be deducted automatically for Social Security and Medicare.
What if my child is classified as a temporary or contracted worker? If this is the situation, plan to set aside some money from each paycheck to cover possible taxes that might be eventually due. If the child earns more than $600, the employer will have to report it to the IRS. If the child makes $400 or more, he or she will have to file a return and pay self-employment taxes.
Are there tax benefits to my hiring my child for the summer? There may be. It depends on the structure of your business. If it's a sole proprietorship or a partnership with your spouse, your child can work up to the age of 18 without you having to pay Social Security, Medicare or Federal Unemployment taxes. If you treat your child as a regular employee, pay wages in currency and file a W-2, you'll be able to deduct the wages paid as a business expense.
Understanding the rules can help avoid trouble. If it surfaces, working with an experienced attorney can help.
Source: AccountingToday, "6 Tax Tips for Students Working Summer Jobs," accessed July 14, 2016