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 the 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.

Covered Services of a Child. The wages for the services of a child 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, or

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

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 = $ 14,600 (Filing Single)

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%

$14,600 Minor Child Wages

x 26.3% - (Minimum Tax Bracket)
$3,839.80 SAVED!

$13,850 Minor Child Wages

x 48.6% - (Middle Tax Bracket)

$7,095.60 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