Don’t want your child lounging around this summer while school is out? It doesn’t have to be that way.
Strategy: Put your child to work for your company. In fact, make your offspring an official employee, paying him or her a “fair wage” for services performed.
As an employee of your company, your child is entitled to the sameas other employees, like health insurance and retirement plans.
Because your child will likely earn less than the standard deduction amount ($6,100 for 2013), the federal income tax consequences will be relatively minor or nonexistent. Another advantage is that the wages are “earned income,” which is exempt from the “kiddie tax” calculation. In contrast, unearned income above $2,000 received in 2013 by a dependent child under age 24 might be taxed at the parents’ top tax rate under the kiddie tax rule.
Your child doesn’t even have to wait until tax return time to recoup tax withholding. When he or she fills out the W-4, have your child write “EXEMPT” on Line 7. However, this tax break is only available to a dependent child if he or she had no tax liability for 2012 and will earn no more than the $6,100 limit in 2013.
Tip: The withholding exemption is only good for this year. If your child claimed the exemption last year, a new W-4 should be filed.