Paul Neiffer on Children's Wages

Paul Neiffer on Children's Wages

July 29, 2016

Many children of farmers begin working on the farm at a very young age. While there are many benefits to this state of affairs, the question over exactly how to compensate these young laborers in order to maximize the financial advantages while minimizing the potential tax burden – for both children and parents – can be complicated to answer. Ag accounting expert Paul Neiffer discusses the potential pros and cons of various approaches.

The first $6,300 in wages the child earns are tax-free to the child, deductible for the farm, and not subject to payroll taxes. He refers to paying children cash wages for farm work as “one of the best tax planning tools we have out there." 

Payment in commodities or in the form of a gift are other options that farmers have. One disadvantage of compensation in the form of a gift, according to Neiffer, is that the child does not have the option of investing that money in a Roth IRA, which causes the child to miss out on an early opportunity to build a substantial "nest egg" for future retirement.

Watch the video above to get  Neiffer's advice in detail. Paul Neiffer will be doing a weekly segment on Market Day Report about financial tips for farmers. 

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