Paying Your Grandchildren in the Family Business: Key Facts to Know

Title: Paying Your Grandchildren in the Family Business: Key Facts to Know

Many people wonder about the possibility of paying their grandchildren for work in a family business. Understanding this topic can help families stay clear about what’s involved.

Thinking About Hiring Grandchildren

Families often consider bringing younger generations into their businesses. Grandparents may look at paying their grandchildren for help or simple tasks. This can bring up questions about how payments work and what’s reasonable.

Who Can Be Paid

You are allowed to pay your grandchildren for actual work they perform in your business. Payments must be for real services and not simply for the purpose of shifting income or reducing taxes. Grandchildren, just like any employee, need to do genuine work that helps the company.

Age Matters

Some may ask how young grandchildren can be when working in a business. The business must follow child labor laws. When tasks are age-appropriate and safe, younger family members may help out, especially in sole proprietorships or family-only partnerships. However, their work must be suitable for their age and abilities.

Wages and Records

Grandchildren should be paid a fair wage based on the work performed. Payments must be supported by proper records, such as timecards and job details, to show what work was done and when. These steps help the business accurately report wages and meet requirements.

Payroll Tax Issues

Businesses need to withhold payroll taxes from grandchildren’s pay. If your business is a corporation or an LLC taxed as a corporation, all employees’ pay is subject to payroll taxes. If the business is a sole proprietorship or a partnership owned entirely by family, there can be differences in how Social Security and Medicare taxes apply, especially for children under 18. Consult the current tax rules to understand your obligations.

Retirement Benefits

When grandchildren are added to payroll, they start earning work credits for Social Security. This can help younger family members begin building their own retirement history earlier.

Documentation Is Important

Keeping accurate documentation matters. This includes application forms, job descriptions, and records of all hours worked and payments made. Good records show that the work was genuine and the payments were fair.

Looking at the Bigger Picture

Paying grandchildren for work in your business is possible when following the right steps. It brings benefits for the family and can teach valuable lessons to younger generations. Staying mindful of legal requirements and keeping clear records makes the process smoother for everyone involved.