This summer I hired my kids to work for me. They're old enough to do actual work, so I decided that I could have them do the tedious website stuff that I've been putting off for the last year.
Hiring your kids is beneficial on a tax basis, and also allows them to learn a work ethic if you actually make them work. But there are some things that you should research before deciding whether to hire your own children.
First, are they old enough to do real work for you? You can't pay your kids to clean their rooms and deduct it as a business expense. It has to be business-related and legitimate work. Like I mentioned before, I'm having my kids work on my website, my website store, and some other tasks relating to that shop that I've been putting off. It was taking me forever to do the store listings, but they're whipping through it because they're better typists than I am and they don't stop to analyze SEO, keywords, etc. like I do, they just do it.
Don't plan on getting away with paying them $25 an hour to stuff envelopes. I did research into how much people got paid for data entry, then went with a middle-of-the road figure from that range. Its a good salary for a teenager, but not as much as I make per hour, so I'm still profiting from having them do the work.
If they're under 18 or over 18, the tax rules are different. I have one of each, so I have to file their taxes differently. The easiest way to do this, frankly, is to go talk to someone at the bank where your business account is. I had someone at my bank set up a direct deposit system for my business account, and since my kids both have checking accounts at the bank the payroll service is free for me to use. Intuit has a payroll service that will send you notifications when you need to submit hours, pay taxes etc., so it's easiest to have someone help you set that up.
Keep in mind that you can always claim no withholding on their W-2s if they're not going to be earning enough to pay income tax for the year anyway. Here's the IRS info on the subject: IRS GUIDELINES.
State taxes are also something to pay attention to. My kids won't earn enough to have to have state taxes withheld, but there are still rules to follow about registering new hires with the state and filing worker's compensation (my kids are exempt in VA but I had to track someone down to check.)
Legalities aside, there are a few things on the personal side to keep in mind.
Give them work that fits their skill set. My son is in college studying aviation with a double major in computer science. He has a private pilot's license and can rewrite a computer's hard drive, but he can't use a paper punch to cut out wafer paper flowers. When he came home from school I wasn't quite ready to hand off computer work to him yet, so I thought I'd have him do something "simple" while I was getting that set up. Well, turns out that he has sweaty hands and isn't good at figuring out how to do crafts, so that didn't work out. I swear he was really trying, but it wasn't a good fit.
My daughter, on the other hand, wants to major in art and is highly organized. She set up the inventory system for my shop and now yells at me when I don't put something back in the right place. When she gets tired of the data entry stuff I can give her some crafty things to do and she's fine with that too. Today she did some work on my web store and took some pictures for me to use to make more designs.
So make sure that you're assigning tasks based on what they can actually do well. Right now my son is working on my website, doing the setup that I don't know how to do, and I fully intend to use his skills while I have the chance. No more crafty things for him.
Schedule regular working hours. Doing this will eliminate any "when do you want to work for me today" kinds of questions, and it will give some structure to the entire experience. If you treat it like a casual thing it won't help teach your kids that they have to go to work and actually do work. Make sure that they know what you expect them to do and hold them to the time they're supposed to be working. Make sure that you're not hovering, though. They should be able to do the work you're giving them without you having to supervise their every move. (This goes back to the skill set thing.)
Make your expectations about their income clear from the start. My son is in college, so I told him that the point of a summer job, whether working for me or for someone else, is to earn money to spend during the school year. Which means saving most of what he earns.
My daughter asked if she should put some of her money in her savings account. I told her what I thought she should be saving, but what she does with her money is up to her for the most part.
Neither of my kids gets an allowance if they have a job, and they have to finance their own discretionary spending. If you want to have a specific arrangement or a specific amount that your kids would have to save, make that clear from the beginning to avoid any arguments. And don't change your mind about the "rules" on their money after you've decided on them. If they go out and spend their money on Twizzlers and gum you can give them a lecture on eating too much candy. But as long as they're saving what they're supposed to be saving, don't yell at them for spending money that they earned. They'll figure it out soon enough when they want to buy something and don't have enough money for it because of all the Twizzlers.
So far my arrangement has worked out REALLY well. I've had the pleasure of not having to figure out a new website, and my new personal online shop is finally up and running! I've been able to have a thing called "free time" in the evenings, and I've been able to sleep until 7am every day, which is new and unusual. If your kids are old enough to do the things that you hate doing, give some thought to hiring them.
Kara Buntin owns A Cake To Remember LLC, online cake supplies at www.acaketoremember.com and www.acaketoremember.etsy.com