​Tax Benefits to Hiring Your Kids to Work for You in the Summer

In the agriculture industry, a farmer or rancher’s kids will inevitably help with the day-to-day operations of the place. If the producer wants to pay their kids to work for them — especially during the busy summer days rather than have them get an outside job — there are tax benefits.

Let’s talk about those benefits. If you hire your own kids who are younger than 18, and they work for you as the sole proprietor parent, they are exempt from Social Security and Medicare tax. So, there aren’t payroll taxes for your kids if they’re younger than 18. As soon as they turn 18, then they’re subject to Social Security and Medicare tax in the month of their 18th birthday.

The wages are still subject to income tax, meaning you’d need to file a W-2 for the child’s wages to be deductible.

Another benefit is that if their total W-2 wages for the year are under the federal income tax filing requirement, they wouldn’t be required to file a tax return or pay personal income tax on the wages. For 2022, the filing requirement for student dependents was earned income of $12,950, which is a pretty big amount for a child younger than 18.

Keep in mind that the filing requirement for a dependent who makes self-employment income (reported on a 1099) is $400. This is why it’s important to set up a true employer-employee relationship with the child and report it on a W-2 if you want them to remain under the 1040 filing requirement. You’d need to file the W-2(s) by Jan. 31st, 2024.

If you’ve never paid wages or filed a W-2 in the past, you will need to get an Employee Identification Number to be able to file the W-2s. If you already employ workers, it would be minimal additional paperwork to add a W-2 for your kids.

Remember that to take advantage of these tax benefits, actual money needs to be exchanged. However, it’s fine to put that money into your child’s savings account for future needs.

If your kids work on another farm or ranch operation, there are some working hours and job limitations for children younger than 16. But your kids of any age can work at any time in any job on a farm or ranch if you own it, according to the Fair Labor Standards Act.

With all the moisture this year, there’s a lot of hay to put up while trying to maintain fences and check cattle and waters. If you’re having your kids help out this summer with the many jobs to be done, it’s time to start thinking about how this can benefit your tax planning.