Own a Business? Why You Should Hire Your Child This Summer

Many self-employed parents have no idea that it’s absolutely legal—and a great tax move—to hire their own kids to work in their companies. Better yet, it’s a great way to help your kids develop a work ethic, teach them some basic work skills and encourage them to work for their spending money.

Better yet: your business doesn’t have to be a full-time gig. If you work a regular job, but sell items online on the side and report your profit on your taxes as self-employment income, you own a business. You can hire your kid this summer.

The most important things to keep in mind when hiring your kids are to make sure:

  • You keep a log of their job responsibilities and work hours
  • Your kids are old enough to handle the work, and
  • You pay your kids a reasonable rate for their time

Why Hire Your Child?

There are many reasons you might want to pay your kid to work for your. For one, you may have some very basic tasks you need done, from shredding documents to light online research. You might not have time to do it yourself. However, you may have a tough time hiring anyone for an hour or two of work each week.

Second, you may want your child to start working for money, rather than just getting handed an allowance. If you own your own business, you can feasibly hire your 10-year-old. However, there’s pretty much no chance an outside company would be willing to hire a kid that young (unless they’re an actor or model)!

Finally, you get a tax break for paying your kids (it can fall under an accounts payable category of “office help”) AND the money stays within your family.

How to Legitimately Employ Your Kid

The Internal Revenue Service (IRS) is well aware that many business owners hire family members. It’s not a tax scam to do so—as long as you follow IRS rules carefully. Here’s how to hire your child and stay on the IRS’ good side:

Document Your Child’s Work
In case the IRS ever audits you, create a formal job description for your child and keep it on file. Also set your kids up with W-4s (Employee’s Withholding Certificates) and I-9s (Employment Eligibility Verifications) with your business, suggests the legal site Nolo.

You should also keep time sheets for your child’s work, just as you would require of any employee, notes Nolo. It doesn’t have to be fancy. Work logs can be handwritten in a notebook or typed into a computer—whatever is easiest. Just keep consistent records of your child’s hours and the work they did.

Pay Your Kid a Reasonable Rate
You can’t really get away with paying your tween $50 an hour to shred documents and clean your office. The IRS may assume you’re trying to create a nice little way to shield your income from taxes. Minimum wage is probably a safer bet for basic tasks.

However, if your teenager takes photos for your company and posts them on social media, for example, or does similar higher-level tasks, you can pay them a bit more. Check online job sites or call a local temp agency to see what workers are typically paid in your locale for a similar type of work.

And here’s a good one: You actually have to write your child a check or you could transfer money from your business account to their Greenlight card. In other words, you have to pay your working kid real money. You can’t give them pizza or pay for summer camp and claim that those items were in lieu of an actual salary. That’s a big IRS no-no.

What About Taxes?
If your kids are age 17 or younger, you’re not required to withhold Medicare and Social Security taxes from their pay. And if your child is under age 21, their wages aren’t subject to federal unemployment taxes. These rules generally apply if your company is a sole proprietorship or Limited Liability Company (LLC), according to Entrepreneur. If your company is incorporated, or you just want to be sure you’re doing things correctly, talk to a tax pro.

Will your kid have to pay taxes on what they earn from you? Depending on your child’s overall income (are they getting money from anywhere else?) and how much you pay them annually, there’s a good chance your child won’t have to pay any federal or state tax on earnings from your business.

In other words, when it comes to hiring your kids to work in your business, it’s pretty much a win-win all around.

(photo courtesy © Intel Free Press cc2.0)

Why kids should understand the difference between debit and credit cards

Today, it’s not surprising that Americans have shifted from the traditional use of cash to more modern methods of payment like debit and credit cards. According to Fundera, 70% of consumers prefer using cards as a form of payment and 54% prefer using debit cards. 

Debit and credit cards provide convenience, more security than cash and are accepted nearly everywhere. It’s safe to say that while cash may not be going away, teaching children the basics of what credit and debit cards are now will prepare them to use cards responsibly in the future. 

Prepare them for the reality of credit cards

A credit card is a form of payment issued by a bank or business that allows the holder to purchase things on credit. When making purchases with a credit card, you promise to pay back the money you owe (plus any interest!) at a later date. 

When you carry a balance over month-to-month, the lender charges you interest on top of the amount you owe. Carried balances and interest can add up quickly and many families find themselves in a position where it’s tough to pay credit cards off.

In fact, 41% of America’s households have credit card debt. It’s important to introduce your kids to the concept of credit cards while they’re still in the nest – that way, they are prepared to carry one later in life. 

When it comes to teaching your kids, we recommend starting their money management adventures with a debit card. This protects them from overspending because they can spend only the money they have, and allows them to build healthy habits early before they enter the world of credit.

Teach them to manage money with a debit card

Debit cards provide more security than cash and fewer worries about debt than a credit card. A debit card is a form of payment that deducts money directly from a bank account to pay for a purchase. With debit cards, owners can have easy access to their available funds and can often also put money aside for something special using a savings account. 

Kids need to learn how to manage a debit card just like they need to learn how to drive. Whether your child runs their own lemonade stand during the summer, starts their first job or gets an allowance, a debit card can help kids learn to manage balances, save money, and more!

How Greenlight helps

Greenlight helps kids learn how to manage money and form strong healthy habits that will serve them as adults. According to Greenlight CEO Tim Sheehan, the reason Greenlight is a debit card is to “help kids learn to effectively manage the money they’ve earned, as opposed to spending money they may not have.”

Parents are the primary account holders and have the controls to choose where their children can use the card, manage chores and allowances, set parent-paid interest rates on savings, and more. Kids are able to monitor their balances, create saving goals, and learn how to make financially-smart decisions in a safe environment with their parents’ guidance. 

How parents send money using the Greenlight debit card.

Mistakes are just mistakes

With Greenlight, there is no chance for a child to overdraft or overspend since we decline any purchases greater than the child’s available balance. Mistakes are just mistakes! Parents get alerts when kids try to spend more than they have to spark conversations about budgeting and wise spending. 

Parents are able to allocate funds to their child’s “Spend Anywhere” account or choose specific stores where kids can spend and how much they can spend. They can even help their child create a savings goal and contribute money to meet that special goal. 

Ready to teach your child how to manage money responsibly?

Join Greenlight today to start adventures in personal finance with your kids!

New Year Resolutions & Bright Futures

Studies have shown that financial health is strongly connected to physical and mental wellness. There’s no better time than now to start routines that set your kids up for financially-healthy and happy futures. Let Greenlight help you set new year resolutions that you’ll actually keep to jumpstart your progress.

Resolution #1: We all need a bit of balance (tracking)

Our goal at Greenlight is to make sure all kids are empowered to make financially-smart decisions. We think empowerment starts with knowledge — working with kids to make sure they understand how much they earn, how much they spend and how they should save. 

Tip #1 is all about making sure kids take the time regularly (dare we say it, daily?!) to track their spend history and account balances. This new year resolution will naturally spark conversations around trade-off decisions, teaching your kids responsibility in budget management.

Within the Greenlight app, kids are able to monitor their spending, earning, saving, and giving history. This allows kids (and parents!) to track:

  • How much to expect in allowance
  • How much is available to spend
  • Progress toward their saving goals

“I have two teens (13 & 14). Being able to see their spending and balances digitally via the app has made them much more mindful of how and when they choose to spend their money.”

Antoinette K, Greenlight mom

Resolution #2: Save! Save! Save!

We know it’s hard for kids (especially the young ones!) to understand the difference between wants and needs. Starting kids out with a savings account early can teach them to save for what they want and be prepared to cover what they need because unexpected things happen. 

Consider mapping out a monthly plan with your kids to help them articulate, save for and reach their goals. 

The most popular saving goal for Greenlight kids in 2019 was a car!

If your kids earn an allowance based on grades or chore completion, write out how much each grade or task is worth. That will help them calculate what they need to do to accomplish their goals.

Parents are also able to help their kids reach their goals by setting aside a portion of allowances into their child’s Greenlight save account, helping reinforce wise saving habits.

Setting up saving goals within the Greenlight app helps kids visualize what they’re saving for and regularly track their progress.

Greenlight kids who create saving goals save 29% more than kids who don’t.

Once a week, consider having a family meeting to talk about how close your kids are to reaching their goal. Reviewing their spend history can help kids rethink a plan for the next week on how to spend less and save more. This regular routine can turn into a long-term habit that magically reduces the number of times you get asked for money.

Resolution #3: Watch savings grow with Parent-Paid Interest

After you get your family into the habit of saving, it’s time to learn about how to make your savings grow. Greenlight helps teach the power of compound interest by offering parents the ability to pay a parent-paid interest rate on top of their child’s savings.

On average, Greenlight families set a parent-paid interest rate of 18%. 

Once your kids understand the concept of compound interest, you can set your parent-paid interest rate to a more realistic one and have conversations around what grownup savings accounts typically earn.

Resolution #4: Have you done your chores?

Chore routines can be a great way to show your kids that money has to be earned. A recent poll of Greenlight parents showed that 73% give allowance, and 47% say their kids have to earn it. 

Use the beginning of the year to reassess your family’s chore routine. With age may come new responsibilities, changing the chores typically assigned to your kids.

However, if ever, you choose to reward your kids for chores, Greenlight can help with task management. With the Greenlight app, you can set one-time or weekly chores based on the routines you set for your family. 

In 2019, Greenlight helped kids finish 1.8 million chores!

Parent reviews all chores in one view within the Greenlight app.

If your child does dishes weekly, Greenlight allows parents to assign tasks and regular deadlines. If your child contributes to other household responsibilities by cleaning the gutters once a month, one-time chores may be assigned with an optional monetary reward upon completion.

Whatever your goals, Greenlight is here for you.

Greenlight is here to help your family feel empowered to talk about money and form smart habits with all the tools to raise financially-smart kids. Not a Greenlight member? Sign up today!