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 credits or dependent care credits.
– However, income attributed to your child can have unintended consequences and require careful planning.
– The Kiddie Tax is a tax law that applies to children’s unearned income over a certain threshold.
– Under the Tax Cuts and Jobs Act, the Kiddie Tax has changed from using the parent’s tax rate to using the trust and estate tax rates.
– Hiring your child as an employee can help shift income from the parent’s higher tax rate to the child’s lower tax rate.
– When hiring your child, make sure the work is legitimate and that you maintain proper documentation.
– It’s important to consult with a tax professional to understand the specific rules and guidelines related to the Kiddie Tax.

Hot Take:

The Kiddie Tax and hiring children as employees can have potential financial benefits for parents looking to reduce their tax burden. Physical therapists who are parents may consider hiring their children as employees to take advantage of tax credits while teaching them work ethic and financial responsibility. However, it is essential to follow the rules and consult with a tax professional to avoid undesirable outcomes and ensure compliance with tax laws.

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