Farm children under the age of 18 working in mom or dad’s farm operation provide tax opportunities that often get overlooked.
Schedule F farmers (sole-proprietors) can pay reasonable wages to their children (for farm work) and reap large family tax savings. Children under the age of 18 can be paid wages without any Social Security/Medicare (FICA) withholdings and can earn up to $6,300 (assuming they have no other income) tax free. These wages are tax deductible as a Sch. F expense, saving the farmer Federal, State and FICA taxes. These tax savings can be as high as 50% of the wages paid.
Example: Farmer Joe files as a sole proprietor and hires son Scott (Age 16) to work on his farm feeding livestock and baling hay. Scott earns $6,000 from Joe in 2015 and has no other income. Scott pays $0 tax on $6,000, and Joe deducts Scott’s wages as a farm expense, saving Federal, State, and FICA taxes of up to $3000. (Payroll tax forms and W-2’s are required to be filed by Joe.)
If your children are 18 years of age or older, or you have a farm corporation, stay tuned for our next blog.