Putting a young child on the payroll — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
QIn the past, you’ve discussed hiring a child to work for the business. If a young child has monthly responsibilities, does that give payroll credibility? T.M., via e-mail
A Yes. You may deduct reasonable wages paid to a minor child for services actually rendered as a bona fide employee in conducting a trade or business. (IRS Revenue Ruling 72-23) It gives more credence to a legitimate employer-employee relationship if the employer states responsibilities in writing. A previous Tax Court case approved a deduction for a child as young as seven years old. (Eller, 77 TC 934)
Tip: A businessperson cannot deduct a personal allowance paid to a child just for doing certain chores. To qualify for deductions, the child must actually render services to the business.