12/31/2025
G&G TAX PROVIDES FARM PAYROLL SERVICES -
Hiring your children can be a highly effective tax strategy for a farm, effectively shifting income from your high tax bracket to your child’s lower (often zero) bracket.
For a farmer with $20,000 in farm profit and $100,000 in total taxable income, every dollar paid to a child could save you significant money in federal income and self-employment taxes.
1. How to Utilize Payroll Services
To make the arrangement "IRS-proof," you must treat your child as a legitimate employee. Payroll services (G&G TAX ADP PAYROLL)
Generating W-2s: Essential for documenting the income.
Withholding Calculations: Automatically handling the exemptions for children.
Direct Deposit: Ensuring there is a clear paper trail of payment from the farm account to the child’s account (never pay in cash).
Compliance: Helping you file Form W-4 and Form I-9 just like any other employee.
2. Tax Benefits & Savings Estimate
If your farm is a sole proprietorship or a partnership owned only by you and your spouse, you get special exemptions for children under 18:
No Social Security/Medicare (F**A): You don't pay the employer portion (7.65%), and the child doesn't pay the employee portion (7.65%).
No FUTA (Federal Unemployment): Exempt until the child turns 21.
Zero Income Tax for the Child: In 2024, the standard deduction is $14,600. A child can earn up to this amount without paying any federal income tax.
Estimated Savings Example
With $100k in taxable income (likely in the 22% federal bracket) and a 15.3% Self-Employment (SE) tax rate on farm profit: | Category | Benefit | Parent's Savings | You deduct the child's wages from your Schedule F profit, saving ~37.3% (22% income tax + 15.3% SE tax) on every dollar paid. | | Example Scenario | If you pay one child **$10,000** for legitimate work: | | Total Tax Savings | ~$3,730 saved in taxes that would have otherwise gone to the IRS. |
3. Critical Compliance Rules
Reasonable Wages: You must pay what you would pay a stranger for the same work (e.g., $15/hr for cleaning stalls, not $100/hr).
Real Work: Chores like "cleaning the kitchen" don't count. It must be farm-related labor like feeding livestock, field work, or bookkeeping.
Record Keeping: Keep a log of hours worked and tasks completed.
IRA Opportunity: Since the child now has "earned income," they can contribute to a Roth IRA, allowing that money to grow tax-free for decades.
