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How Hiring Your Child This Summer Can Reduce Taxes
The wages you pay your child are generally deductible as a business expense. For your child’s income tax purposes, wages received will be at least partially protected from federal income tax by his or her standard deduction. Any wages in excess of the standard deduction generally will be taxed at your child’s marginal rate, likely only 10%. So this strategy can reduce your family’s overall income tax liability.
Additional savings may be available on payroll taxes. If a business is a sole proprietorship or a partnership where both partners are the child’s parents, wages paid to a child under age 18 are generally exempt from Social Security and Medicare taxes. Wages paid to a child under age 21 are exempt from federal unemployment tax.
To qualify for these benefits, the job must be legitimate, compensation must be reasonable and proper payroll records should be maintained. Contact the office if you’d like to learn more about the tax benefits.
Review Your Withholding After Filing
If you filed your 2025 return on time, you may now have valuable information that can help you fine-tune your 2026 withholding. A big refund indicates you withheld too much in 2025. If you expect your 2026 income and deductions to be very similar, consider reducing your withholding so that you won’t give the federal government such a large, interest-free loan this year.
Meanwhile, a high tax bill (and perhaps interest and penalties) when you filed your 2025 return means you withheld too little. You may want to increase your withholding in 2026 to avoid, or at least minimize, interest and penalties next April.
Was your 2025 tax bill or refund small? Reviewing your 2026 withholding is still a good idea if this year you have significant changes in income or deductible expenses — or you experience a major life event, such as a marriage, divorce or the birth or adoption of a child. If you earn income not subject to withholding, you may also need to evaluate estimated tax payments to stay compliant and avoid or reduce interest and penalties. Contact the office to discuss your situation.
More Entities Gain Access to IRS Business Tax Account
The IRS has announced an expansion of its Business Tax Account (BTA), making the self-service platform available to partnerships; tax-exempt organizations; federal, state and local governments; and Indian tribal governments.
The BTA is a centralized platform that allows eligible users to manage their federal tax responsibilities online. Among other things, BTA users can view tax balances, make payments and see payment history, access eligible payroll and income transcripts, if eligible, and download select digital notices.
The newly eligible entities join sole proprietors, S corporations and C corporations that are already able to access the platform. To create an account, visit IRS.gov/businesses.
