How to Pay Your Children For Farm Work

How to Pay Your Children For Farm Work

Recently, there was a Tax Court case which stated that care must be taken in how wages are calculated and paid. The ruling stated that smaller wages paid during the year would be allowed as a deduction however large bonuses paid at year-end were not allowed.

CliftonLarsonAllen Principle and Farm CPA Today blogger Paul Neiffer explains

Neiffer: "One of the tax benefits for farm families is for those schedule F farmers and husband and wife partnerships that have kids under the age of 18 is to pay them farm wages. The wages are deductible for the farmer and tax-free for the child if less than $6,300 per year and it is not subject to payroll taxes."

Neiffer adds that it is important to have written documentation regarding hours and services rendered by children.

Neiffer: "Paying wages to a child are good but it needs to be for services actually rendered and it needs to be based on a reasonable wage. If you are paying your child $75 an hour is not probably not reasonable. If you are paying your child $10 to $15 per hour for work that you would pay someone else that rate — that would be very reasonable. It would be very important to make sure that you have very good records as to the amount of time that your children work. That is the key thing when you are paying your children — keep track of their time and pay them a reasonable wage."

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