New Jersey Dentists: Time to hire your kids in 2020

The New Year is here and the payroll deductions reset. This is great time to hire your kids.

I recommend hiring your kids for tax savings purposes along with other benefits. The work your child provides should be age appropriate services to your practice. Younger kids can be models for your practice website and brochure. Older kids can also be paid for helping with filing, mailings, social media etc. You must have a job description for each child and a time record must be kept. No child can be paid more than what you would pay a third party to do the same work.

In New Jersey, if your practice is a non-corporate entity (Sole proprietor, Single Member LLC or Partnership), your children under the age of 18 employed by the practice (receiving a W-2) are not subject to Federal Social Security and Medicare tax nor New Jersey unemployment, disability or family leave taxes. In addition, if your spouse is also employed by the qualifying entity, the W-2 income earned by the spouse is also not subject to New Jersey unemployment, disability or family leave taxes.

If the total income earned by your child is less than $10,000 there is no federal or state income tax to pay. The income earned by your child is a deductible expense for the practice. This can provide savings of up to $3700 in Federal income taxes and $1000 in New Jersey income taxes. The money earned by your child may be used to fund a Roth IRA, fund a college savings account or pay for after school activities as an example.

Before implementing these suggestions, please consult with your tax advisor.