Will hiring my stepchild under 18 have the same tax exemptions as biological children?

Thanks for clarifying. That's disappointing but good to know before I made a mistake. Is there any documentation you can point me to that specifically states stepchildren don't qualify? Just want to be 100% sure.

The IRS Publication 15 (Circular E) covers this topic. It specifically states that the FICA tax exception applies to "a child employed by his or her parent" and the IRS defines this relationship as a biological child, legally adopted child, or eligible foster child. Stepchildren aren't included in this definition for FICA and FUTA exemption purposes. You can also reference the IRS website section on family help - they use the term "child" specifically, not "dependent," which would include stepchildren. If you want absolute confirmation, consulting with a tax professional who specializes in small business taxation would be advisable.

How exactly does that service work? Is it just reading docs or do actual tax people review your situation?

Sounds interesting but couldn't you just call the IRS and get the same answer for free? These online services always seem to be charging for info that's available somewhere else.

They use AI to analyze your tax documents and transcripts, but what I liked is they can pull in specific tax code sections that apply to your situation. You upload whatever documents you have questions about, and it figures out what's relevant. The IRS does have this info for free, but good luck finding the exact paragraph that clarifies stepchildren vs biological children without spending hours searching. I tried calling the IRS first but gave up after being on hold for 45 minutes. For something specific like this, having a tool that can quickly pinpoint the exact rule was worth it.

Wait, there's a service that gets the IRS to call you back? How does that even work? The IRS phone system is notoriously impossible.

Yeah right, no way this actually works. I've been trying to reach the IRS for months about an identity verification issue. If there was a way to skip the line, everyone would be using it. Sounds scammy to me.

It basically navigates the IRS phone system for you and holds your place in line. When they're about to connect with an agent, you get a call. Worked surprisingly well for me. I was skeptical too before trying it. They use the same phone system everyone else does, but their system waits on hold instead of you having to do it. When I tried calling myself, I gave up after an hour, but with this I got a call back in about 2 hours without having to stay on the phone myself.

That's interesting - I hadn't considered the adoption angle. We've actually talked about it before for family reasons, but I didn't realize it would also have this tax benefit. Do you happen to know how complicated the adoption process is for a stepchild? I'm guessing it's simpler than other adoptions.

Stepchild adoption is generally much simpler than adopting a non-related child. The biggest hurdle is usually getting consent from the other biological parent, if they're still in the picture and have parental rights. In my case, the biological father had been out of the picture for years, so it was fairly straightforward. The process typically involves a home study, filing adoption papers with the court, and a hearing. Costs vary by state but are often lower for stepparent adoptions - ours was about $1,500 total including attorney fees.

That's actually not a great solution for this specific issue. Even with an S-Corp structure, payments to shareholders that are related to services performed are still considered wages subject to employment taxes. The IRS is pretty strict about ensuring reasonable compensation is paid for work performed. Additionally, there are restrictions on how S-Corp stock can be issued, especially to minors, and the administrative burden of maintaining an S-Corp is significant. For most small businesses, the cost and complexity of setting up and maintaining an S-Corp just to try to work around this rule would far outweigh any potential tax benefits.