What is Family employment?
Family employment is a tax strategy in which parents hire their children to work in qualifying family businesses, resulting in significant tax savings through payroll tax exemptions and income shifting opportunities. Children under 18 working for parents' sole proprietorships, partnerships, or farms are exempt from Social Security and Medicare taxes, while children under 21 avoid FUTA taxes. The business deducts wages as legitimate expenses, while children can earn up to the standard deduction amount tax-free. Employment income can then fund Child traditional IRA contributions, enabling families to save thousands annually while building long-term wealth and teaching financial responsibility to the next generation.
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