Tax Implications of Children’s Summer Jobs
If you employ your child during the summer season you open yourself up to some coveted and vaunted exemptions. In order to avoid tax pitfalls, be aware of the possible tax risks you might face when employing your child. Here we tell you about Tax Implications of Children’s Summer Jobs.
A Prudent Tax Move
According to your taxes, children under 18 years old working for their parents are the best type of workers. Number one, a child does not have to pay federal unemployment taxes. Number two, parents can avoid Social Security and Medicare taxes on their child’s pay (roughly 31.3%).
Furthermore, a business owner can take a deduction for a child’s income. A teenegager does not have to pay taxes up to $5,8000. In addition, they can put another $5,000 into a tax-deductible in an Individual Retirement Account (IRA).
- Kiddie Taxes: Kiddie taxes are the taxes a child pays at their parent’s tax rate if they have unearned income greater than $1,900. Unearned income is income from dividends, capital gains, or interest. This can continue if a person is a full time student till the age of 24. If a child earns income in addition to this tax, they have to file a separate tax return. In order to avoid raising their gross income, which limits other benefits or exemptions , filing a child separately is a sound choice.
- At Work Home Taxes: If you decide to employ your under 21 year old child at home such as painting, cleaning out the garage, or other work, you do not need to pay any federal payroll taxes or unemployment taxes.
- Fair and Reasonable Payment: If you employ your child, what you pay them must commensurate with your child’s skills. Because a child is not considered a professional, you would not pay them what a professional usually charges.