What is a first-time employer?
If you started a new business, you are on your way to becoming a first-time employer. This topic is relevant for my readers who have been following the Hire your Child tax strategy content I have been publishing on my social media platforms and my website. This tax strategy has been saving families tens of thousands of dollars each year. And some of you saw this opportunity, but you had not registered your side hustle as a business. Therefore, you listened to my advice and registered your companies. Now you are on your way to making a first hire – which could be your child.
That’s excellent news. Suppose you have not registered yours yet, but you give people hairdos during the weekend, or you own an informal coffee shop where you work with your kids, as examples. In that case, it’s time to formalize it by registering your business and start building genuine, generational wealth from that business you thought was only a side hustle.
Your business is worth so much more and can give you a real start to becoming a millionaire – register it now and follow the steps below to hire your child for the first time. These steps formalize you as a real employer suitable for the tax benefits of hiring your child.
Here are the steps to make your first hire, even if it is your child.
As a first-time employer, you must ensure that you hire the right person for the job. More so, you must ensure that you do it right, especially if you are hiring your child to save money on taxes. Failure to do so means all your efforts will be for nothing come tax season.
Obtain an Employer Identification Number (EIN)
Obtaining an EIN is one of the most critical steps you must take before hiring your first employee. Imagine listening to one of my videos and decide to register a business from your side hustle and hire your child. As soon as you successfully register the company, you must obtain this EIN so that you can use it whenever communicating with the IRS. To get the EIN, go to the IRS website and file IRS Form SS-4.
Prepare to withhold tax
Besides registering with your state’s labor department for unemployment compensation taxes, you also need to get ready to withhold taxes. To get ready, you need to set up a payroll system that allows you to withhold social security and Medicare taxes from your employees. Get the IRS Publication 15, Circular E, Employer’s Tax Guide from the IRS website to understand more about this.
Even though your under 18 children will not be liable for these taxes, you will still need to file them with the IRS. It is your legal responsibility.
Define roles for each soon-to-be-hired employee
As mentioned at the beginning of this section, you must hire the right person for any position. It is even more critical if you are hiring your child to enjoy tax benefits. Therefore, first, define the role that your child will fill. If it is a general office assistant – printing papers, copying, and answering calls, it must all be written in her job description. Such information helps in case the IRS wants to know more about your child’s position and salary. While defining these roles, it is essential to assign a function that your child can perform. Otherwise, they cease to be bonafide employees, which could be a problem in your bid to save money on taxes.
Ensure that other tax obligations are fulfilled
There are still more steps that you need to take for tax purposes. Some of them may be a little confusing, which is why you may need to talk to me about my tax services, or if you need something explained to you. Taxes are every business’ legal requirement. Therefore, take these steps seriously so that you build generational wealth without the IRS breathing down your neck. In my experience, it is the one thing that can drive you crazy and drive your business to the ground.
Therefore, fill out forms such as the IRS Form W-4, Withholding Allowance Certificate. Employees use it to tell you how many allowances they are claiming for tax purposes. In turn, it gives you, as the employer, the chance to withhold the right amount of taxes from their salary.
You must file Form I-9, Employment Eligibility Verification, to demonstrate that each employee in your business is eligible to work in the U.S. You must keep these forms in your office, inside each employee’s file, in case there is a need for inspection.
Frequently asked questions
How do you hire your children in your home-based business?
You must ensure that your children are bonafide employees. This means that they must be legitimately hired employees who have signed a standard contract stating their work conditions.
How do I pay my child from my business?
Always, you must pay your child using a check or bank deposit – not cash. A bank deposit or check allows you to trace the money you paid them in case the IRS raises an audit.
Can you employ your children in your business?
Yes, you can. The Tax Cuts and Jobs Act allows parents who own a partnership or a single parent who runs a sole proprietorship to hire their children and not withhold certain types of taxes from their salaries. Age does not matter; your child simply must be able to perform the task they are hired for.
How do you hire someone for a new business?
If you are a new business, you can still hire your child. But you need to fulfill the steps required for you to be a legal employer (see the article above).
What do I need to know before hiring my first employee?
Before making the first hire, you need to know your state and federal labor and tax laws. For taxes, you might want to engage a tax professional so that you have the right start.