How to Handle Tax Withholding for Children on Payroll

Employers often have minors on their payroll. Children might work for you during the summer or after school. There are some important things you must remember when you hire children, such as child labor laws. You must also remember to withhold taxes from the wages of children on payroll.

Before you withhold taxes

When you add a minor to your payroll, have them fill out Form W-4 when they first start the job. The information they enter on the form will help you calculate how much federal income tax to withhold from the child’s wages.

The child might not know how to fill out the form, so you might need to offer W-4 help.

If you are in a state that also has state income tax withholding, the child might also need to fill out a state withholding form.

Tax withholding for children on payroll

You must withhold all payroll and income taxes from children on your payroll. Taxes you need to withhold are:

  • Social Security tax
  • Medicare tax
  • Federal income tax

Depending on location, you might need to withhold state and local income taxes from the children’s wages. You must also pay the employer portion of FICA payroll tax (Social Security and Medicare taxes).

Even if minors do not earn very much, you must withhold taxes. The minors might be able to get refunds for their income taxes when they file their annual income tax returns.

You must withhold taxes even if children on payroll are part-time or temporary employees. Withhold taxes from all your employees, regardless of their employment status.

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Taxes on tips

If children on payroll earn at least $20 in tip income during a month, you must withhold taxes on tips. All employees who earn tips should report the tips to you each month on Form 4070. You will then withhold payroll and income taxes based on the combined wages and reported tips.

If you have to give allocated tips to employees, you will not withhold any taxes from the tips. Employees will need to report the allocated tips on their income tax returns and pay any owed taxes. Employees should use Form 4137 to calculate the FICA taxes they owe.

Tax withholding when hiring your own child

When hiring your child, tax withholding might be different than when you hire someone else’s child.

If you are the sole owner of the business, you must withhold income taxes from your children’s wages. But, you do not have to withhold or contribute to FICA taxes until the child turns 18.

If you own a corporation, your child is subject to income taxes and FICA taxes.

If you are in a partnership and your partner is the child’s other parent, you do not have to withhold FICA taxes until the child turns 18. You still need to withhold income taxes.

If any of your partners is not a parent of the child, you must withhold all taxes. The taxes include income taxes and FICA taxes.

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This article has been updated from its original publication date of December, 2, 2014.

This is not intended as legal advice; for more information, please click here.

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