Client Tip for July 2016: Working Children
The following are a few planning ideas for kids with summer and/or small after school jobs:
- If a sole proprietor or a husband and wife partnership hires their child under the age of 18, they are not required to withhold FICA tax. They are also not subject to Federal Unemployment Tax.
- A dependent child can claim exempt from Federal and State income tax withholding (not FICA tax) if they have less than $350 of investment income and less than $1,050 of total income for the current year. They also must have had no tax liability in the prior year.
- If a child has earned income, consider making a ROTH contribution for a child or grandchild. The contribution is limited to the lesser of $5,500 or the child’s earned income. It will grow tax free and if certain requirements are met, all withdrawals will also be tax free.
These are some of the ideas to consider when your children start working.