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)

What your middle schooler should know about money

Going off to middle school is a big milestone — for your kids AND for you. No doubt, your kids will have more freedom. They may not need as much help with homework, and they may even ditch a few family movie nights to see their friends. 

But it’s a great time in their lives. They’re growing up, learning about themselves and starting to form their own opinions about the world. While they enjoy these new privileges, it’s still important to help them learn valuable life lessons — starting with money.

Opportunities to earn 

Middle school is a great age to start earning money [1]. How? Chores, babysitting, yard work, dog-walking, the list goes on. Get creative with it!

When your kids are earning money, they begin to understand what it means to spend it. They grasp the idea that money really doesn’t grow on trees — it comes from hard work. A great way to teach this is by giving them chores and allowance (you can find these in your Greenlight app!). 

Help them manage their spending

Middle schoolers are busier than ever before, and they’re enjoying their independence. When they head out to the movies or spend the night at a friend’s house, it’s important that you’re there with them… without physically being there. 

Greenlight lets you keep track of their spending habits directly from your phone. When they’re spending too much at a certain store, you can add spending controls. Or when they’re not saving enough, incentivize them with Parent-Paid Interest

Talk about saving vs. spending 

As your kids grow up, they may start to have more “wants.” Use this as a chance to talk about saving vs. spending. 

We recommend a “show, don’t tell” approach. Show them what happens when you save money over time. Nice car? Nest egg for college? Hoverboard? A healthy savings account will get them there! 

Understanding costs

When kids are young, they don’t always understand how much life costs. As you know, it can be… well, expensive. Not sure how to prepare them? Start here: 

  • The next time you’re grocery shopping, point out certain brands that are more expensive than others. See what they say! 
  • Tell them about variable expenses and fixed expenses [2]. For example, your car payment is a fixed expense — you know it’s the same every month, so you can budget around it. But a nice dinner out? That will vary depending on the restaurant, and we call that a variable expense. 
  • Show them the utility bill (fun, right?). Some people are shocked when they get their first utility bill. Do your kids a favor now and help them learn what drives the cost up or down — they’ll thank you later!

Keep the conversation going 

Your kids will still be under your roof for a while, so don’t let the conversation drop after middle school. Their understanding of money will evolve and so will your conversations. And when you hit a roadblock, you can always count on Greenlight to help you out!


[1] Money Talks News , [2] US News

What high school graduates should know about finances

You’ve made it to the finish line. After diplomas, passed tests and signed acceptance letters, it’s finally starting to feel real. 

If you’re scrambling at the last minute to send your kids off with all the knowledge and tips they need for the real world, take a breather. We have a step-by-step guide for raising financially-smart high school graduates.

The basics 

No matter what financial background they have or career path they choose, there are some basics that every high school senior should know before college. 

  • Credit vs. debit. Once they’re 18, they can get their own credit card. Here’s the thing: they have to be able to prove their independent income or have a co-signer (probably you!). Talk about credit vs. debit to decide if this is the right time for them. 
  • Everything costs money. Teach your kids how to budget and monitor their spending regularly so they don’t find themselves in a bad situation.
  • Wants vs. needs. For some kids, this is the first time they’ll be paying for gas on their own. For others, college loans are about to start piling up. Take this as a teaching moment to explain why needs should always come before wants.

Return on investment 

Whether they’re picking a major or starting their own business, an important lesson is return on investment. Start with something like, “What you do now affects what you do later. If you decide to push off your mandatory classes, you may wind up in college longer than you wanted to.” You can also use a calculator to figure out the ROI for a major or minor [1]. 

Keep communication open 

Just because they’re leaving home doesn’t mean they’re all alone — remind them of this. They have you and they have us. Setting the stage for strong communication is really important! 

Let Greenlight help 

Family finance, big decisions, money management… it’s kinda our thing. They may not be right down the hallway from you anymore, but you can use your app to stay connected and keep up the financial learnings. 

Or, send them a nice Greenlight Gift to let them know you’re thinking of them. With all of this help, they can handle anything that comes their way! 

[1] PayScale