At What Age Can I Put My Child on Payroll?

Employing your child in a family business offers valuable work experience and potential business advantages. To ensure compliance, understanding specific rules regarding age, work restrictions, tax implications, and payroll setup is important.

Age and Work Restrictions

Federal law (FLSA) establishes minimum ages and work restrictions for minors. Children under 14 cannot be employed in non-agricultural jobs covered by FLSA, with exceptions like newspaper delivery or acting. For 14 and 15-year-olds, employment is limited to non-manufacturing, non-hazardous jobs during non-school hours, with daily limits of 3 hours on school days and 8 hours on non-school days, and weekly limits of 18 hours during school weeks and 40 hours during non-school weeks.

Once a youth reaches 16, they can work unlimited hours in any non-hazardous occupation. Federal law prohibits anyone under 18 from being employed in occupations declared hazardous by the Secretary of Labor. A significant exception exists for family businesses: children of any age can work for businesses entirely owned by their parents, provided the work is non-hazardous and not in mining or manufacturing. Regardless of age, the child must be performing legitimate, necessary work for the business, not merely receiving payments without contributing value.

State laws impose stricter child labor regulations than federal laws, including higher minimum ages, more restrictive hour limits, or additional work permit requirements. Employers must comply with both federal and state laws, adhering to whichever standard is more protective of the child. It is advisable to consult the state’s Department of Labor for age, hour, and occupation restrictions.

Tax Considerations for Employing a Child

Wages paid to a child for services are a deductible business expense, reducing the business’s taxable income if compensation is reasonable. The child’s earned income is subject to federal income tax, but their standard deduction can reduce or eliminate their tax liability. For 2024, a single filer’s standard deduction is $14,600, meaning a child can earn up to this amount without federal income tax if they have no other income and are claimed as a dependent.

A significant advantage for parent-owned businesses relates to payroll taxes, such as Social Security and Medicare taxes (FICA). Wages paid to a child under age 18 by a parent-owned sole proprietorship or a partnership where both partners are the child’s parents are exempt from FICA taxes. This exemption does not apply if the business is incorporated, even if the parent controls the corporation, or if it is a partnership with non-parent partners.

A more expansive exemption applies to FUTA taxes: wages paid to a child under age 21 by a parent-owned sole proprietorship or a partnership with only parent partners are exempt from FUTA. These payroll tax exemptions can lead to substantial savings for the business. It is important to maintain records, including timesheets, job descriptions, and pay stubs, to substantiate the legitimacy of the employment and the wages paid for tax purposes. Further details on these regulations are available in IRS Publication 15, Employer’s Tax Guide.

Setting Up Child Payroll

Establishing a formal payroll for your child involves several procedural steps, similar to hiring any other employee. If the business does not already have one, an Employer Identification Number (EIN) is required for employers. An EIN is a federal tax ID issued by the IRS, free to obtain through their website. While sole proprietorships might not always need an EIN if they have no employees, having one is beneficial and required once employees are hired.

New employees, including children, must complete two forms: Form W-4 and Form I-9. Form W-4, the Employee’s Withholding Certificate, helps determine the correct amount of federal income tax to withhold from the child’s pay based on their filing status and any adjustments. Form I-9, Employment Eligibility Verification, is used to verify the employee’s identity and their authorization to work in the United States. The child will need to provide documentation, such as a Social Security card and a birth certificate or driver’s license, for the I-9 form.

Implementing a system to track hours worked, calculate wages, and process payments is necessary. This can involve manual record-keeping, utilizing accounting software with payroll features, or engaging a dedicated payroll service. Wages must be paid regularly, either through direct deposit or check, and cannot be informal cash payments “under the table.” At the end of each year, the business is required to issue a Form W-2, Wage and Tax Statement, to the child, reporting their annual earnings.