Employer Tax Breaks for Your Kids?

Good article in the WSJ over the weekend which talks about getting tax incentives for employers who hire their relatives. The article is Hire Your Kids, Get a Tax Break, by Laura Saunders.

Congress this past March passed the HIRE (Hiring Incentives to Restore Employment) Act. It gives employers incentive to hire and not have to pay FICA taxes on the worker's wages from 3/19 until the end of 2010. It also gives the employer a dollar for dollar tax credit up to $1,000 for 2011 if the employee stays with the company and is on the payroll next year.

The restrictions are pretty lax in that qualified employees are considered those who have not worked for more than 40 hours in the prior 60 days before being hired. No restriction on size or type of company and no limit to the number of new hires. The act also states firms can rehire laid-off workers with no set period that this rehire has to work for the firm again. Eligible hires can be either full or part time but they can't be independent contractors. These new employees are still responsible for their own payroll taxes and Medicare. They must also provide the employer with a form certifying they meet all of the conditions as outlined above.

How does HIRE apply to relatives such as your kids or your spouse? This is where there are restrictions based on the type of business entity you have:

- Sole Proprietor - you can claim HIRE benefits on your spouse but no other relatives.

- Partnerships (LLC, LLP) - if partners are husband/wife only - you can't get benefits from hiring relatives. You can't get the benefit either if you hire a relative who has more than a 50% interest in the partnership. If the partners are completely unrelated, full HIRE benefits apply to any relative hired.

- Subchapter S and C corporations - no benefits for either directly or indirectly greater than 50% shareholders. Any related owners must add their interests together and if greater than 50% no benefits allowed for these owners.

If you are a small business owner, you should consider taking advantage of these HIRE benefits. Put your kids to work for you and get a tax break for yourself and allow your kids the ability to earn some income this summer. If you are really smart (and lucky), you should get your kids to save their earned income and contribute to a Roth IRA to be invested for their future.

Take advantage of the HIRE Act!

Carleton