Farm children 18 years or older working in mom or dad’s farm operation provide more tax opportunities for farmers.
Schedule F and corporate farmers can pay reasonable wages to their children (for farm work) and reap large family tax savings. Children can be paid cash wages income tax free, subject to FICA withholdings, if wages do not exceed $6,300 and do not have any other income. These wages and payroll taxes are tax deductible as farm expenses, saving up to 50% of taxes on the wage amount paid.
Example: Farmer Joe files as a sole proprietor and hires son Scott (19 years old and back home to the farm after completing his freshman year of college) to bale hay and feed livestock for the summer. Scott earns $6,000 from Joe in 2015 and has no other income. Scott has $459 of FICA tax withheld from his paychecks and Joe, as the employer, has to match that amount (for a total of $918 of FICA to pay into the Social Security system). Joe deducts the $6,459 of wages/FICA taxes as a farm expense, saving Federal, State, and FICA taxes of roughly up to $3,200. (Payroll tax forms, deposits and W-2’s need filed). Joe saves net $2,770, Scott pays $459 in FICA tax and the family saves $2,311.