Can I Hire My Child as a Household Employee?
Learn the key legal and tax considerations when hiring your child as a household employee, including wage rules, tax obligations, and recordkeeping requirements.
Hiring your child as a household employee can be a practical way to teach responsibility while offering potential tax benefits. However, ensuring compliance with federal and state regulations is essential. Understanding the rules on wages, taxes, and recordkeeping is crucial before proceeding.
Labor Law Criteria
Employing a child as a household worker requires adherence to labor laws that determine permissible tasks and conditions. The Fair Labor Standards Act (FLSA) generally exempts household work performed by a child for a parent from federal child labor provisions, but state laws may impose additional restrictions on work type and hours.
Age restrictions vary. While federal law allows parents to hire their children for household duties, some states limit work for minors under 14, even within a family setting. Certain states restrict tasks to minor chores, while others require permits for more substantial work. Hazardous activities—such as operating heavy machinery or handling dangerous chemicals—are typically prohibited.
Household employees, including children working for their parents, are classified as domestic workers, not independent contractors. Misclassification to bypass labor laws can lead to penalties, including back wages and fines. The Department of Labor (DOL) and state agencies may scrutinize arrangements where a child performs significant work beyond routine chores.
Wage Requirements
Compensation must be reasonable for the work performed. While federal minimum wage laws generally do not apply in a household setting, paying a fair wage helps avoid tax scrutiny. If wages exceed reasonable amounts for the tasks completed, the IRS may reclassify payments as gifts, impacting tax deductions and reporting.
To determine an appropriate wage, consider what a non-family employee would earn for similar work. If hiring an unrelated individual for the same tasks would cost $12 per hour, paying significantly more could raise questions. Payments should be made via check or direct deposit to establish a clear record. Paying in cash without documentation can create compliance issues, especially if the IRS audits household employment records.
A structured payroll schedule, such as weekly or biweekly payments, reinforces the legitimacy of employment. Irregular payments may suggest an informal arrangement, undermining potential tax benefits.
Tax Withholding and Reporting
Parents are generally not required to withhold federal income tax from their child’s wages unless the child requests withholding by submitting Form W-4. If no tax is withheld and the child’s income exceeds the standard deduction, estimated tax payments may be necessary.
If a child earns $2,600 or more in 2024 as a household employee, parents must issue a Form W-2 by January 31 of the following year. This form reports taxable income and is filed with the Social Security Administration (SSA) to document earnings. Failure to provide a W-2 when required can result in penalties.
State tax obligations vary. Some states mandate withholding or additional reporting even when federal rules do not. Parents should check state tax agency requirements for quarterly filings or other employer obligations. If earnings exceed federal or state thresholds, the child may need to file a personal income tax return, even if no tax was withheld.
Social Security and Medicare
Social Security and Medicare tax obligations depend on the child’s age. Under IRS rules, wages paid to a child under 18 by a parent for household work are exempt from Federal Insurance Contributions Act (FICA) taxes. This exemption applies regardless of earnings, so neither the employer nor the child must contribute the 15.3% payroll tax.
Once the child turns 18, these taxes generally apply. Employers must withhold 6.2% for Social Security and 1.45% for Medicare, with additional Medicare tax obligations if earnings exceed $200,000 annually.
For children 18 or 19, FICA tax withholding and reporting follow the same protocols as for other domestic workers. This includes tracking earnings, deducting appropriate amounts, and remitting payments via IRS Form 941 (if applicable) or annually through Schedule H of Form 1040. Employers who fail to withhold and remit these taxes when required may be liable for both the employee’s and employer’s share, along with potential penalties and interest.
Unemployment Tax Guidance
Under federal law, wages paid to a child under 21 by a parent for household work are exempt from the Federal Unemployment Tax Act (FUTA). Parents do not have to pay the 6% FUTA tax on the first $7,000 of wages. Once the child turns 21, FUTA taxes apply, requiring employers to report and remit payments through IRS Form 940.
State unemployment tax laws vary. Some states follow the federal exemption, while others impose different thresholds or requirements. Employers should verify state-specific rules to ensure compliance, as failure to pay required unemployment taxes can result in penalties and loss of eligibility for state unemployment insurance programs.
Recordkeeping Obligations
Accurate records substantiate the legitimacy of employment and ensure compliance with tax and labor laws. Essential documentation includes payroll records, time logs, and copies of tax filings. Retaining these records for at least four years is advisable, as the IRS and state agencies may request them in an audit.
A written employment agreement outlining job duties, pay rates, and work schedules can further support the validity of the arrangement. While not legally required, such an agreement helps demonstrate that the child is performing actual work rather than receiving payments solely for tax benefits. Keeping copies of issued paychecks or direct deposit records ensures transparency and provides a clear audit trail for tax reporting.