Working at a tender age is an American tradition.
If your children work in your business, consider giving them education fringe benefits. Doing this right creates
• tax deductions for the business, and
• tax-free fringe education benefits for the child.
You can accomplish this without a Section 127 plan when your child needs the education to do the job for your business or to comply with a law or regulation.
In general, you can’t treat undergraduate degree programs as work-related education. If you pay for such programs outside of a Section 127 plan, you must treat the payments as taxable income to the child-employee.
But certain individual courses within a program may be evaluated separately, and certain courses, such as accounting courses for an employee-child with an accounting job, may qualify for tax-free working condition fringe benefit payments.
On the other hand, MBA programs can qualify as work-related education if they maintain or improve the employee’s skills for his or her current profession or business.
In addition to the possibilities listed above, if your child is age 21 or older, the Section 127 plan can offer up to $5,250 in tax-free education benefits.
In conclusion
You get the idea. If you hire your kid, makes sure you pay them W-2 wages and file proper paperwork with the IRS. With relatively modest effort, paying for certain education expenses may qualify as tax-free working condition fringe benefit.
We specialize in helping clients clarify their taxes so they keep more of their money. Paying for your kids’ education tax free is what we call tax planning.
If you or someone you know would like to learn about hiring kids to work in your business, please feel free to contact us by scheduling a call, or by emailing at [email protected].
Tatsiana B. Bender
Bender CPA, PLLC
Fort Worth, TX 76107
[email protected]
Phone: (817) 313-4352
Bender-CPA.com
