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Do I have to pay my children who work for the family business?

Lots of discretion

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Parents who own their businesses and employ their children have a lot of legal discretion when it comes to how they handle the situation. However, if you are in doubt about whether a practice is legal, it can a good idea to consult a lawyer. An accountant can also help you maximize the financial benefits from employing your children.

Type of business

You are on firmer ground if your business is a sole proprietorship or a partnership with your spouse. In fact, in these cases, you do not have to worry about Social Security or Medicare taxes for your children if you do pay them.

Reasons to pay

Not paying your children can be a good way to save money with your business, but there are compelling reasons to pay, too. For one thing, parents are allowed to use/control their minor children's money in many cases, and paying your child could mean you get a tax break due to less income coming from business operations. You can still use the money you paid your child to help toward household expenses or the child's college savings or car savings if that is what you and/or the child want.

Paying children also helps them learn about earning money, budgeting, saving and spending money. It can also be good for morale at the business, as children might be motivated to work better if they see a tangible reward. Of course, in some situations, it might not be financially feasible to pay your children. 

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