Hiring your child during summer break can offer significant tax savings and real-world experience—but it’s essential to follow federal and Washington-specific labor laws and tax rules.

1. Federal Tax Benefits

  1. Deductible Wages: If your business is a sole proprietorship or an LLC taxed as such, wages paid to your child are deductible just like any other employee wage.
  2. Payroll Tax Exemption: For children under 18:
    • No Social Security or Medicare (FICA) tax.
    • No Federal Unemployment Tax (FUTA) until age 21.
  3. Lower Tax Bracket: Your child’s wages are taxed at their lower rate. Their standard deduction (around $14,600 in 2024) usually covers all summer earnings.
  4. Roth IRA Eligibility: Earned income makes them eligible to contribute to a Roth IRA.

2. Washington State-Specific Considerations

  1. Labor & Industries (L&I): You must register with L&I when hiring a minor, even if federal payroll taxes don’t apply.
  2. WA Cares & PFML: These may not apply to minors, but it’s important to confirm with the Washington Employment Security Department.
  3. Child Labor Laws: Washington restricts hours and types of work minors can perform. Follow all L&I rules.

3. Steps for Compliance

  1. Register with WA L&I for minor employment.
  2. Check if WA Cares and PFML apply to your child’s wages.
  3. Complete Form I-9 and W-4; obtain an EIN if needed.
  4. Pay a reasonable wage for actual work.
  5. Track hours and duties performed.
  6. Issue a W-2 at year-end.

Summary of Benefits

  • Wages are deductible for your business.
  • No FICA or FUTA taxes for underage children.
  • Lower overall family tax burden.
  • Opportunity to fund a Roth IRA for your child.
  • Compliant with state labor laws.

Conclusion

If you operate a qualifying business and comply with labor and tax laws, hiring your child can reduce your tax liability while helping them gain early financial experience.

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