Paying Children for Chores: Tax Guidelines and Tips for Parents

[chefinbiz]

I've begun to pay my kids (10yo, 9yo and 8yo) to do small PC taks(stamping, stickering etc)..How do I keep track of them as "employees" to claim this for taxes. I read somewhere, I was allowed to do this.....Thanks!

 

[Shawnna]

My accountant told me to pay them by check and they have to be paid according to their ability and the task...you can't pay an 8 year old $1000.00 to stamp catalogs today. And you can't pay him for something he reasonably can't do...computer tech support. You will have your check as a record and they don't have to pay any taxes unless they make a certain amount during the year...can't remember what that amount is. I am thinking $2400.00 per child, but not sure. So, you get a deduction and they get tax free earnings.

 

[chefinbiz]

Thanks for the info. I am paying them "child slave" wages- $1 per task- rotating the tasks between children so that some times the one who had the easier task for $1 now has a little bit harder task, and vice versa. I am thinking instead of paying them as I go, I will keep track of their tasks and then write them a check for a larger amount. They like having the $1 right away though, so I'll see how they feel. So far it has been a way to show them we can all work to make PC Our Family Business.

 

[tlennhoff]

You could pay them in monopoly/fake money at the time they do the task and then once a month have them bring that to you for a real check.

My mom has begun working with my nephews on creating a "$1 million" fund - they have agreed to put 10% of all money they earn or get as gifts into the savings account she set up. She also puts in $5 a month in the accounts for them as long as they put their 10% in. I think she found a program or has a spreadsheet that shows the kids when they'll hit the $1 million mark. They had mixed feelings about this when she started but a year or two into it and they are starting to understand savings and be excited about the idea. I think my youngest nephew involved in this was about 10 when she started this.

If you are also into teaching your kids about charity this is a great opportunity. Get them to put 10% aside for charity, match it monthly, and let them decide who gets the money each month or every 3 months.

The earlier one starts these with kids the more likely they are to make it a lifetime habit as it will seem normal to them.

 

[Shawnna]

What a great concept. I could use that discipline myself. I gave up trying to save a long time ago. Everytime I would get a sizable amount in there something would happen and take it all away. But, I guess that is what it is for. It would be great to start your baby off that way. By the time they went to college they would have money for the things they needed.

 

[BethCooks4U]

You could pay them in monopoly/fake money at the time they do the task and then once a month have them bring that to you for a real check.

My mom has begun working with my nephews on creating a "$1 million" fund - they have agreed to put 10% of all money they earn or get as gifts into the savings account she set up. She also puts in $5 a month in the accounts for them as long as they put their 10% in. I think she found a program or has a spreadsheet that shows the kids when they'll hit the $1 million mark. They had mixed feelings about this when she started but a year or two into it and they are starting to understand savings and be excited about the idea. I think my youngest nephew involved in this was about 10 when she started this.

If you are also into teaching your kids about charity this is a great opportunity. Get them to put 10% aside for charity, match it monthly, and let them decide who gets the money each month or every 3 months.

The earlier one starts these with kids the more likely they are to make it a lifetime habit as it will seem normal to them.

Could you please try to find that and post it? I think it's a fantastic idea!

 

[KellyTheChef]

Could you please try to find that and post it? I think it's a fantastic idea!

I agree! My 12 yr. DSS needs some help in the savings department. (Well, we as parents need to help him!! LOL) and I would love to start something like that for my 2 yr. DS, too!

 

[tlennhoff]

Could you please try to find that and post it? I think it's a fantastic idea!

I've emailed my mom.

In the meantime I found a calculator online that will do reports so you can change the info each month and see what has changed. It can be found at LFG - Calculators it is the Savings Goal Calculator. You enter the savings goal and years you have to invest monthly and how long you have to invest and it updates the informaiton - then run the report to get a good view of how much you'll have each year. I set it for $1,000,000 with 20 years to save and only putting in $20 a month. With the calculator they can play/experiment with different monthly amounts. The report also shows what the ending values are for what you are putting in and how much you need to put in monthly to reach the goal.

Once you have some money in the account and a better idea of what you can put in monthly this starts to really make a difference.

I might start with something smaller for younger kids - like $1,000, then increase it every 2-5 years ($10,000, $100,000, and finally the million dollar plan). When I used the calculator for the $10k based on no current savings, $20 a month contributions, and a 4.5% interest based on ingdirect.com it is almost doable in 20 years. When I redo it for $1,000 goal putting in $10 a month it says I can reach that goal in just 7 years. Playing with the years to save also shows how interest increases savings dramatically. Changing things from 20 to 30 years makes a major change (cut time dramatically for the $1,000,000 goal)

Now picture the grandparents putting some money in their for birthdays (even just $10-20 makes a difference) and holidays and they can really see how it grows. Maybe to get the program started parents and grandparents could each contribute $25-50.

 

[Stampaholic1961]

When our kids were little, we had 3 banks for each one. When they received money they put 10% plus an offering into their "church" bank, a minimum of 10% into their "savings" banks & the rest into their "spending" bank. Even when she was really little my daughter would put half of what she had after tithe & offering into savings. My son just did the minimum into savings. My husband told my daughter that when she got older she would have enough to buy a car & her brother would have enough to buy the gas!!

 

[tlennhoff]

I agree! My 12 yr. DSS needs some help in the savings department. (Well, we as parents need to help him!! LOL) and I would love to start something like that for my 2 yr. DS, too!

It is such a great idea to start this with really young kids. You put in a small amount monthly/yearly and then as they get older you show them how their money is growing and from day one you always put 10% of their money gifts into the account. Print off the reports after each birthday/holiday so they can see how little amounts made major changes in the savings goals.