Easy solution: Hire your own kid

Eileen Ambrose -- Personal Finance

Eileen Ambrose

June 17, 2008

The job market for teenagers has been shrinking for a couple of years, but this summer it's looking exceptionally brutal.

In fact, the teen employment rate earlier this year was the worst in 60 years, according to an April report by the Center for Labor Market Studies at Northeastern University.

But there's an easy solution for parents with a family business: Hire your kid for the summer.

It not only gets your son or daughter out of the house, but there are financial and other advantages for both of you.

Eileen Ambrose Recent columns

"Nepotism is great," says Barbara Weltman, author of J.K. Lasser's 1001 Deductions & Tax Breaks 2008. "When you hire your kids, you're not only getting the help that you need and someone you can trust, but you also are teaching them valuable work lessons and life lessons. And giving them something to put on their resume."

When putting a child on the payroll, you still have to follow labor laws as you would for any other employee.

"You have to pay them the minimum wage or better," Weltman says.

It can't be outrageously high, either; otherwise the IRS might suspect you're being so generous just to get a bigger tax deduction for wages paid.

Maryland's minimum wage is $6.15 an hour, but will go up to $6.55 an hour July 24 to reflect changes in the federal wage law.

Your child must fill out a W-4 form so federal taxes can be withheld from the pay.

Your teen might be able to claim an exemption from withholding, however, if he or she didn't owe taxes last year and this year will make $5,450 or less, with no more than $300 of that coming from interest or dividends.

Also, if the business is a sole proprietorship and your child is younger than 18, you don't have to pay Federal Insurance Contributions Act (FICA) and federal unemployment taxes for him or her, Weltman says.

The unemployment tax is a minor savings, but FICA could be significant, she says. The employer and employee split the FICA tax, which totals 15.3 percent of pay and goes toward Social Security and Medicare.

Just as you would with other employees, set out your expectations for your teen.

"You have to give them a very specific responsibility. 'This is what I expect of you,' " says Janet Bodnar, author of Raising Money Smart Kids. If you just say come to the office and I'll find something for you to do, "kids will think they can hang around," she says.

Also, make it clear if you're counting on your child to work the entire summer, says Robert Trumble, director of the Virginia Labor Studies Center at Virginia Commonwealth University. Sometimes teens bail out of a job after two or three weeks.

In fact, one reason the summer job market is weak for teens is that many theme parks and resorts hire foreign college students for the summer, Trumble says.

The older students are reliable, committed to working the full summer and, unlike American teens, willing to accept minimum wage, he says.

Of course, you're not just a boss, you're a parent. And in that role you can use the summer job as an opportunity to impart a few financial lessons.

Take time to explain taxes and why their paycheck is a lot smaller than they expected.