How do you hire your kids?

Question

Hello,

After hearing about it on Tom Wheelwright's podcast, I want to hire my daughter to help out with our real estate business.  She is a mature 7 years old, and would do great at cleaning the hallways and common areas of our buildings. And I know she'd love to make some extra spending money.

Does anyone know what I need to do to hire her?  I own the buildings through several single-member LLCs, but I do not have a management company (my wife manages the buildings).

A few questions:

1) Do I hire my daughter as an employee or as an independent contractor?  We currently don't have any employees, so independent contractor would work much better for us

2) My understanding is that payroll taxes (social security, etc) do not apply to children employed by family businesses. Is this correct?  Does any withholding apply?

3) Are there any labor laws that I need to be aware of?  We live in NYC.  My understanding is children of any age can be employed in family businesses in NY.

Basically I would like to write her checks as an independent contractor (as she performs the work), with no taxes paid as long as she stays under the standard deduction of $12,400.00 per year.  Is there anything I need to be aware of for this?

Thank you all very much!

Michael Plaks · Answer

@Jasper Cooper

Start here:https://www.nolo.com/legal-encyclopedia/why-its-tax-smart-hire-your-children.html

Samantha P. · Answer

@Jasper Cooper

https://www.nolo.com/legal-encyclopedia/when-does-your-child-have-file-tax-return.html

Jasper Cooper · Answer

Hello Eammon!

Thank you very much for your reply earlier.  The IRS website says that "services of a child under age 18 aren't subject to Social Security and Medicare taxes."  So I think what I would need to do would be to pay my daughter through a payroll company, but without paying social security and medicare taxes.  I think payroll companies start at about $30/month, so it could be worth it. Am I missing something?

Thank you very much!!!!

Eamonn McElroy · Answer

You don't get to pick between IC and employee based on what is convenient.  It is a determination based on the reality of the relationship between the service provider and the taxpayer paying for the services.

Not likely she'll be appropriately classified as an IC unless she sets her own hours, is free to perform the work without instruction, provides her own tools/supplies, and/or is otherwise involved in a cleaning trade or business for many clients outside of her parents, etc.  I think it's safe to say the appropriate classification for your seven year old will be employee.  Consult an employment law attorney familiar with your state and local law for the final say.

The juice may not be worth the squeeze.  You'll need to pay her appropriate wages for time worked.  Probably minimum wage for unskilled labor.  Then you'll have some degree of payroll costs whether you DIY payroll or outsource to a professional.

This strategy yields the best results with a large family real estate business (i.e. an RE business that generates a lot of cleaning and maintenance requirements) and a 14+ year old who has nothing to do during the summer and can work for at least a few hours without supervision.

Best of luck.

Jasper Cooper · Answer

Thank you very much for your help!

How do you hire your kids?

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