Ask Spectrum Business Owners

Ask Spectrum: How do Medicare taxes work when employing my minor child in a single-member LLC?

BY Spectrum Wealth Management | Aug 3, 2022

Question: I plan to hire my 15-year-old child to work in my single-member LLC, and I expect to pay them about $12,000 this year. Do I pay them through payroll checks and file a W-2?

This answer is straightforward but has some complexities. Firstly, it’s important to know that as long as your child member is doing legitimate work for your business, they can be paid up to $12,000 tax-free.

  • If you stay at or below the $12,000 limit, your child will not have to pay any income taxes on their salary.
  • During tax season, your child(ren) will file their own tax return, and since they only made $12,000, they pay no federal income tax because of the standard deduction of $12,000, their taxable income is zero.
  • There are also other potential tax benefits to having a child work for your business: you can deduct their payment from the business’s taxable income if their salary amount stays at $12,000 or less.

Additionally, employing your child at your single-member LLC can support your child in learning crucial skills they can use later in life: entrepreneurship and a strong work ethic.

To recap, you should pay your child via payroll checks and file a W-2. By doing so, neither you nor your child will pay any Social Security or Medicare taxes if they are paid $12,000 or less. A W-2 payment is essential — if you pay your child on 1099, they will have to pay self-employment taxes. You can learn more about tax rules for children and dependents by visiting the IRS website.

If you have questions about your family business, single-member LLC, or hiring family members and children, please contact us to get in touch with one of our experienced wealth advisors.

Spectrum Wealth Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Additional information about Spectrum’s investment advisory services is found in Form ADV Part 2, which is available upon request. The information presented is for educational and illustrative purposes only and does not constitute tax, legal, or investment advice. Tax and legal counsel should be engaged before taking any action. The opinions expressed and material provided are for general information and should not be considered a solicitation for purchasing or selling any security.