Maximize the Financial & Tax Benefits of Hiring Your Child for Summer Employment
As summer approaches, many parents and professional accountants are considering the financial, developmental, and tax planning advantages of summer employment for their children. Beyond supplemental income, summer jobs provide invaluable firsthand exposure to the workforce, fostering responsibility, financial literacy, and work ethic—all while opening doors to significant tax strategies and retirement planning options that can benefit both parents and children.
Tax Advantages: New Standard Deduction Limits
The IRS has raised the standard deduction for single filers from $14,600 in 2024 to $15,000 in 2025. This means your child can potentially earn up to $15,000 from summer or part-time work without incurring any federal income tax liability, provided their total income for the year does not exceed this threshold.
Retirement Planning: IRAs for Young Earners
Young employees can contribute up to the lesser of $7,000 or their total earned income to an IRA in 2025. For instance, by combining the $15,000 standard deduction and a full $7,000 traditional IRA contribution, your child could potentially shelter up to $22,000 of income from federal taxation. However, the Roth IRA is a compelling option for long-term tax-free growth since contributions grow and distribute tax-free in retirement—ideal for workers just starting their careers.
Some young employees may be reluctant to part with their hard-earned money for retirement savings, but parents or grandparents can support by gifting funds for their IRA contributions, kick-starting a habit of financial responsibility and future wealth accumulation.
Popular Summer & Part-Time Jobs—and Tax Reporting Considerations
- Fast Food Services: Iconic entry-level positions that offer valuable soft skills and a regular W-2 for income tax reporting. Tips, if received, must be tracked and reported separately if not included in wages.
- Babysitting: Teaches responsibility and childcare. Income may be subject to taxation even without a W-2; keeping accurate records is key for compliance.
- Lawn Mowing & Gardening: Teaches time management and small business skills. Income is reportable; W-2s issued only if employed by a business, otherwise treated as self-employment income.
- Lifeguarding: Requires certification in lifesaving techniques. Typically treated as employment with a W-2 issued.
- Pet Sitting & Dog Walking: Fosters responsibility and business acumen. This income is generally self-employment and reportable without a W-2.
- Art, Craft, and Digital Sales: Online and local marketplace sales teach entrepreneurship and e-commerce skills. Treated as hobby or business income depending on intent and net profit; income is reportable above the standard deduction.
- Online Tutoring: Academic proficiency leveraged through online platforms. Income is taxable and should be tracked.
- Social Media Management: Creatively manage brands for small businesses; income must be tracked, especially if freelancing rather than as an employee.
- App or Game Development: Coding projects for extra income—track all compensation; self-employment rules generally apply if not hired as an employee.
Regardless of the job, accurate documentation and understanding of tax reporting are foundational principles when guiding young earners.
Hiring Your Child in a Family Business: A Smart Tax Planning Move
If you’re self-employed, employing your child can provide tangible tax savings and retain more wealth within your family—provided employment is legitimate and compensation is reasonable for the work performed.
Wages paid to a minor child in an unincorporated business are not subject to FICA (Social Security and Medicare) until age 18 and avoid FUTA (unemployment tax) until age 21. Hiring your child means shifting income to the child’s lower tax bracket and reducing your own taxable income and self-employment tax liability. For example:
- You pay your child $16,000 in 2025 while in a 24% tax bracket.
- You save $3,840 in federal income tax (24% of $16,000) while your child pays taxes only on the $1,000 above the standard deduction, or even less with retirement contributions.
- In addition, business profits subject to self-employment tax are reduced, providing further tax savings.
Strategic Retirement Savings
When the child makes a deductible IRA contribution, it can fully offset their minimal taxable income. But for optimal long-term growth, prioritize a Roth IRA, which leverages decades of tax-free compounding—substantially more advantageous than a small initial income tax savings.
Core Benefits of Summer Employment for Kids
- Skill Development: Builds communication, collaboration, and problem-solving skills.
- Financial Literacy: Instills budgeting, saving, and personal responsibility.
- Work Ethic & Independence: Promotes a strong, independent approach to new challenges.
- Awareness of Taxes: Introduces the basics of tax reporting and compliance, a valuable life lesson for young workers.
In summary, summer employment is more than a seasonal activity—it’s a launchpad for personal and professional growth, financial education, and smart tax planning for families. If you’re considering hiring your child or have questions about the tax implications, contact our office for informed, personalized tax and business guidance.
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