What to Know About Kiddie Tax and Hiring Your Kids as Employees

Key Points:

• Hiring your children as employees can provide tax relief through child tax credit or dependent care credit.
• However, income attributed to your child may lead to undesirable tax outcomes, such as the kiddie tax.
• The kiddie tax is a tax on a child’s unearned income, such as interest, dividends, and capital gains.
• There are strategies to minimize the impact of the kiddie tax, such as paying your child a reasonable salary for the work they do.
• Proper planning and consultation with a tax professional can help you navigate the complexities of hiring your kids and managing their income.

Hot Take:

How does this apply to physical therapists?

Physical therapists who own their practice or work as independent contractors may consider hiring their children as employees to take advantage of tax relief. However, they need to be aware of the potential implications of the kiddie tax and plan accordingly to avoid unfavorable tax outcomes. By properly structuring their children’s employment and consulting with a tax professional, physical therapists can maximize the tax benefits while avoiding any tax pitfalls.

Reference Article https://www.studentloanplanner.com/kiddie-tax-hiring-kids/