Hire Kids (Family)
Kids under 18
CA - Maximum # of hours
Earnings Calculator
Determine how much you can pay children based on pay rate and hours worked (Month)
Hours worked worksheet
Determine how much you can pay children based on pay rate and hours worked (Week)
CA - CHILD LABOR LAWS (2013)
Kit
FAQ- Do I have to have Workers’ Compensation Insurance?
Employment Agreement
CA - Work Permit
32 Ideas for Jobs Your Child Can Perform in Your Business
Time Sheet - Option 1 - (Month)
T.S. - Option 2 - (Weekly) Example
TS - Option 2 - (Weekly)
Action Items:
Make a written employment agreement between your business and your child. See Employment
Agreement. The agreement should contain a description of the services to be rendered, the amount and
timing of compensation, the length of employment and signatures of both parties.
Obtain a federal employer identification number. See Form SS-4. The IRS prefers that you register at
its website www.irs.gov. Just select Employer ID Number in the business section to begin the process. Or,
complete the enclosed Form SS-4 and call 1-800-829-4933 to get a number. Make sure to check YES in the
box on line 14 indicating your employment tax liability will be <$1,000 per year. You could be invited to
be an annual filer rather than quarterly.
Obtain an employer identification number from your state. See the list of State Departments of
Revenue. You may call or visit the website listed to obtain the form necessary to file for the number.
The IRS website links to the various State websites if you choose state link from the Employer ID page.
Verify compliance with immigration laws. See Form I-9. Keep this form as a part of your records for at
least three years following the date of hire.
Have each child file Form W-4 to determine withholding. See Form W-4. Keep this form on file for
each employee. If you are going to pay your child an annual amount under $5,800, and your child has no
other unearned income, you need only to indicate the child is exempt from withholding on line 7 of W-4.
Keep time cards on file with hours worked as determined by the signed Employment Agreement.
Your children under 18 are exempt from FICA and Medicare tax. If the child is exempt from
withholding, you will not have to deduct anything from the paycheck.. You can use the payroll sheet
as a time/summary sheet to enter the checks you have made out. Remember to pay them at regular timely
intervals. It would also be wise to keep a daily listing of hours worked and duties performed.
File a Quarterly Federal withholding return. Form 941 will be mailed to you every quarter after you get
your identification number unless you are invited to file annually on Form 944. Make sure you file the 941
even if you did not pay wages or withhold any taxes. If you are a quarterly filer, they will be expecting it.
File a State quarterly withholding return if required by your state. You should receive information
when you file for your State identification number.
File W-2’s for each child, and file Form W-3. The IRS will mail you a W-2 kit at the end of the year.
One copy needs to be filed with the Social Security Administration, one copy with your state if required,
the employee retains a copy, and the employer retains one.
File an annual federal unemployment (FUTA) return. This must be filed on Form 940 by January 31
each year. The IRS sends a Form out to all employers to file. Your child under age 21 is not subject to
this tax, but file the Form claiming an exemption on line 2.
File a State reconciliation of tax withheld if required. You should be contacted if your state requires an
annual reconciliation
Grand kids or niece or nephew under 18
Action Items:
1. Set up a separate Sch C business for your kids (parents of your grand kids / niece / nephew)
2. Follow the directions above
Audit manual (the document the IRS will use during a RC audit: https://www.irs.gov/pub/irs-utl/Reasonable%20Compensation%20Job%20Aid%20for%20IRS%20Valuation%20Professionals.pdf
Reasonable Compensation is defined by Treas. Reg. § 1.162-7(b)(3) as the amount that would ordinarily be paid for like services by like organizations in like circumstances, and this standard is adopted in Treas. Reg. § 53.4958-4(b)(1)(ii)(A). Thus, the concept has two prongs: Amount Test – focuses on the reasonableness of the total amount paid; and Purpose Test – examines the services for which the compensation was paid.
EVALUATING THE REQUIREMENTS OF SECTION 162 The reasonableness of compensation paid is a question of fact and each case turns on its own facts and circumstances. In addressing the Reasonable Compensation issue, a Valuation Analyst should consider the following factors (among others that may be relevant in a particular case):
• the employee’s qualifications
• the nature, extent, and scope of the employee’s duties;
• the employee’s background and experience;
the employee’s knowledge of the business;
• the size and complexity of the business;
• the time devoted by the employee to the business;
• the economic conditions generally and locally;
• the character and amount of responsibility of the employee;
• whether or not the compensation is pre-determined based on activities to be performed or not determined until the end of the tax year;
• amounts paid to the employee in prior years;
• the salary policy of the taxpayer as to all employees; and
• the amounts paid by similar size businesses in the same area to equally qualified employees for similar services.
These factors are suggested by the provisions of the statute and the associated regulations and have been fleshed out over the years in numerous court decisions. See Mayson Manufacturing Co. v. Commissioner, 178 F.2d 115 (6th Cir.1949), See also Owensby & Kritikos, Inc., v. Commissioner, 819 F.2d 1315 (5th Cir. 1987).