As a certified public accountant, Jonathan Ucran is trained to look at every issue through a tax-minded lens.
Ironically, tax benefits were not top of mind when he put his son, Joshua Ucran, on the payroll of his Smithfield-based accounting firm. Instead, it was a desperate need to find someone – even an 8-year-old – to help with day-to-day administrative tasks to keep his then-fledgling business afloat.
“When I opened the business, I was a one-man band,” Ucran said. “My [8-year-old] son was in school across from the office, so he would come over after school and help out with menial tasks – shredding documents, running across the street to the bank to make deposits.”
Fast forward 10 years and Ucran’s one-person operation Ucran & Co. LLC has grown to a staff of 20 spread across two locations. Joshua, now 18, has graduated to more-advanced responsibilities, troubleshooting computer problems and making use of his driver’s license to run errands between the Smithfield and Warwick offices.
Ucran still considers his son’s help “a godsend” for his company. But the tax benefits aren’t to be discounted, either.
Thanks to changes passed in the $1.5 trillion tax cut in 2017 that doubled the standard deduction, the younger Ucran can avoid paying taxes on up to $12,950 in 2022 earnings. Based on his roughly 10 hours weekly at the family business, he should be able to shelter his earnings from income taxes altogether, Ucran says.
“The tax benefits are monumental,” Ucran said. “Whether you’re paying a staff member or family member, the work still needs to be done. This way, he’s also getting an income stream and it’s not coming out of mom and dad’s pockets.”
The tax benefits of putting your kids to work for your business are not new. But in a tight labor market that has employers struggling to fill open jobs, some accountants say that hiring children to work for the family operation may hold newfound appeal.
“It’s always common in family-owned businesses to draft the kids as help, especially for the summer,” said Paul Oliveira, a certified public accountant and director of strategic tax services for Kahn, Litwin, Renza & Co. Ltd. “With the labor shortage in various industries, I think the need will be even more acute, as opposed to just a luxury.”
Beyond the standard deduction increase enacted under the Trump administration, certain types of family-owned businesses such as sole proprietorships, single-member limited liability companies and partnerships can save on employment taxes as well. Long-standing federal tax policy allows unincorporated businesses to avoid paying Social Security and Medicare taxes for children under 18 years old.
While that means child workers aren’t accruing Social Security benefits based on their earnings, the savings in employment and income taxes combined amounts to a “pretty hefty” tax benefit, according to Thomas Pora, tax manager for CliftonLarsonAllen LLP.
Add in the option to set aside some of that child’s untaxed income for retirement through a Roth IRA account, and that’s a “pretty solid win,” Pora said.
Yet many family-owned businesses still don’t know these savings options are out there, which could be why few are actually putting their children on the payroll, Pora says.
“It’s sort of a ‘once in a blue moon’ situation because most people don’t know about it,” he said. “As soon as I bring it up as a suggestion to clients, though, a lightbulb kind of goes off.”
While Pora expects the worker shortage will make the option even more popular, others were skeptical.
Changing cultural expectations around child workers and a multitude of competing options – such as athletics and unpaid internships – mean fewer family businesses are employing their children now than in the past, says Thomas Lisi, managing partner of Marcum LLP in Providence.
“You don’t see kids working like they used to,” he said.
Ucran also didn’t think the tight labor market would hold much sway over whether family-owned businesses hired their kids.
“It’s really a choice driven by the family dynamic,” he said.
For Ucran, the father-son relationship supersedes that of an employer and employee. Even in the office, Joshua is his son, not his worker, an attitude he can afford in part because of the nature of the work.
“I am not cracking the whip and telling him to move this wheelbarrow of stone,” he said. “It’s not this strict, regimented schedule or manual labor kind of deal.”
Indeed, office environments are more conducive to bringing on younger family members as part-time help rather than manufacturing settings, which may require more intense training and a long-term commitment, says Patricia Thompson, a partner at Piccerelli, Gilstein & Co. LLP.
Although Joshua is heading off to college in the fall, Ucran plans to keep him on the payroll so he can pitch in occasionally when he’s back home.
“For me, it benefits my life,” Ucran said. “My business has reaped a lot of benefits, and we’ve been able to teach our son responsibility, to teach him pride in ownership. Whether or not he chooses to follow in my footsteps is still to be determined, but he has essentially had an active internship throughout his adolescent years.”
