Payroll Company | Cloud Payroll Pros Inc. | Highland, CA

Minor Child Wages

Minor Child Wages:

Family Employees:

Child Employed by parents. Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of a child. If these payments are for work other than in a trade or business, such as domestic work in the parent's private home, they are not subject to social security and Medicare taxes until the child reaches age 21. However, see Covered services of a child or spouse below. Payments for the services of a child under age 21 who works for his or her parent, whether or not in a trade or business, are not subject to federal unemployment (FUTA) Tax. Although not subject to FUTA tax, the wages of a child may be subject to income tax withholding.

One Spouse Employed by the other spouse. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not FUTA tax. However, the payments for services of one spouse employed by another in other than a trade or business, such as domestic services in a private home, are not subject to social security, Medicare, and FUTA taxes.

Covered Services of a Child or Spouse. The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:

v A corporation, even if it is controlled by the child's parent or the individual's spouse,

v A partnership, even if the child's parent is a partner, unless each partner is a parent of the child,

v A partnership, even if the individual's spouse is a partner, or

v An estate, even if it is the estate of a deceased parent.

Parent Employed by Child. The payments for the services of a parent employed by his or her child in a trade or business are subject to income tax withholding and social security and Medicare taxes. Social security and Medicare taxes do not apply to payments made to a parent for services not in a trade or business, but they apply to domestic services if:

v The parent cares for a child who lives with the parent's child and the child under age 18 or requires adult supervision for at least 4continous weeks in a calendar quarter due to a mental or physical condition and

v The parent's son or daughter is a widow or widower, divorced, or living with a spouse who, because of a physical or mental condition that lasts at least 4 continuous weeks, cannot care the child during such period.

Payments made to a parent employed by his or her child are not subject to FUTA tax, regardless of the type of services provided.

Here is another way of explaining the process:

If you are a sole proprietor, a partnership consisting of husband and wife, or a single member or husband and wife only member LLC, putting your minor children on the payroll can save you tax dollars. Your children must be able to perform duties in relation to their age, and proper payroll records must be kept, in order to expense these wages to your business. Below is an example of the employee and employer taxes and the amount of savings available.

Standard Deduction = $ 12,200

Federal Taxes = $ 0

State Taxes = $ 0

Social Security = $ 0

Workers Compensation = $ 0

Medicare = $ 0

FUTA = $0

SUI = $0

S.D.I. = $ 0

Total Employee Tax = $ 0

Total Employer Tax = $ 0

Business Owners are taxed on Net Profit. Since Minor Child Wages are an expense to your business, they reduce Net Profit, thereby eliminating all business taxes on these wages. Here are two examples, one with a minimum tax bracket and one with a middle tax bracket.

Minimum Tax Bracket

Federal Tax – 10.00%

State Tax – 1.00%

Self-Employment – 15.30%

Total Tax 26.3%

Middle Tax Bracket

Federal Tax – 24.00%

State Tax – 9.3%

Self-Employment – 15.30%

Total Tax 48.6%

$12,200 Minor Child Wages

x 26.3% - (Minimum Tax Bracket)
$3,208.60 SAVED!

$12,200 Minor Child Wages

x 48.6% - (Middle Tax Bracket)

$5,929.20 SAVED!

Reference: Circular E – Employer Tax Guide pg. 13, Family Employees * EDD CA Employers Guide pg. 11, Family Employees or EDD Information Sheet DE 231TE pg. 5 Types of Employment - Family Employees

If you have any questions concerning Minor Child Wages.

Please contact us at:

Cloud Payroll
7231 Boulder Ave. #526
Highland, CA 92346
Ph 909-657-6019
www.CloudPayrollPros.com