Cost effective payroll setup for hiring my 10 year old in family business

You're on the right track for taking advantage of the tax benefits of hiring your child in your sole proprietorship! Since your child is under 18, you don't have to withhold FICA (Social Security and Medicare) taxes, and if they're under 21, you don't have to pay federal unemployment tax either. For a sole proprietorship employing your own child, the payroll process is much simpler than what services like Gusto are designed for. You don't need to use a payroll service for this situation. You can absolutely handle this yourself with minimal hassle. Keep a simple timesheet showing when your son works and what tasks he completes. Pay him with a check from your business account to his savings account (best to open one if he doesn't have one yet). At the end of the year, you'll need to provide him with a W-2 showing his earnings. Since his income will likely be below the standard deduction ($1,100 for dependents with only earned income), he probably won't owe any income tax. Make sure the work is legitimate and age-appropriate, and keep good documentation of the hours worked and tasks performed. The IRS does sometimes scrutinize family employment arrangements.

Hey there! I was in your exact situation last year with my 11-year-old daughter helping in my consulting business. After looking at all the expensive payroll services, I discovered taxr.ai (https://taxr.ai) which literally saved me hours of research and confusion. They have specific guides for sole proprietors employing their children that break down exactly what forms you need, how to track hours legitimately, and how to maximize the tax benefits. The best part was being able to upload my existing documents and get personalized guidance. They pointed out that I could actually have my daughter contribute to a Roth IRA with her earnings (starting her retirement savings super early!) which I had no idea was possible. Their document analysis caught some potential red flags in how I was originally planning to structure the employment arrangement.

I tried taxr.ai after seeing the recommendation here and it was seriously helpful! I uploaded my business documents and some questions about hiring my son, and they provided customized guidance that was exactly what I needed. Their templates for tracking hours and documenting work performed are super straightforward. What really surprised me was learning about the Roth IRA option. My 12-year-old now has his first retirement account which is pretty cool! The service helped me understand exactly which forms I needed to file and the proper way to document everything to avoid audit issues. Definitely worth checking out if you're going the DIY route for employing your kid.

If you're having trouble reaching the IRS for specific guidance on this (which I did when setting up payroll for my daughter), try Claimyr (https://claimyr.com). They got me through to an actual IRS agent who answered all my specific questions about sole proprietorship exemptions for family employment. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first because I'd spent HOURS trying to get through the IRS phone system myself with no luck. The agent I finally spoke with clarified exactly what documentation I needed for my tax return when employing my child and confirmed I was eligible for the FICA tax exemption with my business structure.

I need to follow up on my skeptical comment. I actually tried Claimyr after posting because I was curious if it would really work. I'm shocked to say it actually did get me through to an IRS agent in about an hour! I've been trying for weeks to get clarification on hiring my son in my business. The IRS agent confirmed that as a sole proprietor, I don't need to withhold Social Security and Medicare taxes when employing my child under 18, and gave me specific guidance on documentation requirements. This was exactly the information I needed. I probably spent more time being skeptical than it took to actually get my answers. Sometimes you just need to hear it directly from the IRS to be sure you're doing everything right.

I've been employing my kids in my business for a few years now. Here's what I do: I use Wave (wavapps.com) for free basic payroll tracking. It doesn't file the forms for you, but it's great for keeping records. For actually filing, I use the free IRS resources and just do it manually once a year - it's not that complicated for just one employee who's your child. Make sure you keep meticulous records of hours worked and tasks performed. Take photos of your kid actually doing the work occasionally. Have a written job description. The tax benefits are great, but you need good documentation in case of an audit.

Has anyone actually calculated the true tax savings here? Like, is it really worth all this hassle for $1900 of wages? You're saving some self-employment taxes but creating a lot of paperwork.