Hiring Your Special Needs Child – A Unique Employee with Unique Benefits

Recently, I wrote an article about hiring your children in your business. In that post, I showed business owners that you can hire and pay your kids as long as you follow certain guidelines. Yet, what if your child has disabilities? Yes, hiring your special needs child is possible, but there are a few unique considerations that need to be addressed.

Podcast Time Index for “Should I Hire My Special Needs Child?”:

• 01:56 – Hiring My Special Needs Child into My Business
• 06:39 – How Could Paying Your Special Needs Child Help or Harm Them in The Future?
• 16:12 – Why Does it Matter For The Child?
• 19:37 – What Are The Potential Pros and Cons of Giving The Child an income?
• 23:58 – What is The Threshold for Maximized Benefits – 3 Things to Consider
• 31:05 – In Summary
• 34:39 – Wrap Up

Special thanks to my Podcast interviewee and contributor, Jonathan Peyton of Horizon Ridge Wealth Management in Ashburn, VA. Johnathan is a renowned CERTIFIED FINANCIAL PLANNER™ who specializes in wealth management and special needs planning.

Is Hiring Your Special Needs Child Even Possible?

As long as they are capable of performing a task within your business, you can definitely make them employees. Yet, if you hire your special needs children, you want to do it in such a way that it doesn’t harm them. You don’t want them to lose government benefits because they are receiving an income from your business.

And you want to do it in a way that is not detrimental to your business. Like other family members working for you, you must hire them to do actual work. Obviously, their job needs to be age and ability-appropriate. Perhaps they can water the plants or shred documents. Maybe they can run errands or greet customers. Essentially, if they can work, they can work for you!

Advantages of Working for the Special Needs Child

According to the U.S. Bureau of Labor Statistics, people with disabilities are much less likely to participate in the labor force than people without disabilities. In fact, in its Labor Force Characteristics of People with a Disability report published in October 2018, the BLS reported that “in 2017, 20.6 percent of people with a disability participated in the labor force, compared with more than two-thirds of those with no disability.” Thus, not only can hiring your special needs children helps your business, but it can also benefit your child. Specifically, employment offers them two advantages:

1. First of all, hiring a special needs child can give them psychological advantages. – In other words, working for your business allows them to control more of their life which can lead to increased self-esteem and additional feelings of self-worth. In fact, “working” provides them with an opportunity to experience what it means to join the workforce, pay taxes, and become contributing members to society. Earning an income also teaches them what it means to be self-sufficient, or at least feel like they have control over their own finances.
2. Additionally, hiring your children through your business can give them financial advantages. It can help shelter their income and potentially lower their tax liabilities. Depending on your particular situation, employment or sub-contractor agreements will also provide income for their specific needs.

How to Hire Your Special Needs Child

Simply put, bringing on special needs children looks exactly like hiring any child. You can:

• Hire them directly as a sub-contractor. – In this case, your children follow in your footsteps by becoming entrepreneurs or sole proprietors of their own companies. For example, they could own a consulting firm, a cleaning company, a shredding company, or something similar. Through their company, your children would enter into a sub-contractor agreement with your business. Then, your business would pay them for the work and reimburse any expenses they incurred. Before proceeding any further down this path, you should conduct an analysis to determine the break-even point between income and expenses. The goal of the analysis is to determine whether becoming a sub-contractor benefits all parties, achieves your target objective(s), and offers more benefits than being an employee of your company.
• Hire them directly as an employee. – This is as easy as it sounds. Just like you do for other employees, you could hire your special needs children. In this case, you would give them job titles and pay them according to their ages and ability levels. Additionally, you would document the work they do and pay any required payroll taxes on them. Unfortunately, what you pay your special needs children may be limited due to the nature of the work they are given to do or due to SSI and SSDI income limits.
• Pay them more when they work under a supervisor’s guidance. – Although all parents want the best for their children, they know their children have limitations. These limitations can extend to their work environment and require additional, direct, supervision from others. When the supervision has a direct result, or impact, on the work produced, some flexibility in what you pay them can be explored. According to the SSA, “Where work is done under special conditions, we only consider the part of your pay which you actually earn.” Under this rule, all income may not be deemed “countable” which could mean government benefits may not be reduced, resulting in more income paid to the child and offering the child more “income independence.”

Unique Considerations – Social Security Benefits

Things can get a little more complicated if Social Security is involved. How does earning income affect the Social Security benefits your special needs child may be receiving?

If your children are blind or disabled, they could qualify for SSI, or Supplemental Security Income from the Social Security Administration, depending on the severity of their disabilities. SSDI, or Social Security Disability Insurance, pays benefits to blind or disabled adults (it is also extended to the children of retired parents under the family income limit) who have worked and paid taxes throughout their lives. Therefore, more than likely, if you have special needs children between the ages of 0 to 18, they are receiving SSI rather than SSDI.

If your child is receiving SSI benefits in 2019, Social Security provides SUPPLEMENTAL income to the tune of $771.00 per month. However, to encourage SSI beneficiaries to work, Social Security limits how much your child can receive as income when determining how much SUPPLEMENTAL income it will pay. Yet, Social Security does not “count” all income beneficiaries receive. For instance, Social Security does not count the first $20 of most unearned income the child receives in a month, nor does it count food stamp benefits or public benefits based on needs. Additionally, Social Security does not count the first $65 of earned income.

Social Security Earned Income Calculations

Let’s go through an example:

Let’s assume your child makes $1,600 a month as an employee of your business. Since the first $20 of unearned income (rebates, tax-free benefits, etc.) and $65 of earned income are not “countable” towards SSI benefits, countable income starts at $1,515. Social Security then divides the remaining income in half and counts one half of the income. This leaves $757.50 ($1,515 divided by 2 = $757.50). Finally, Social Security subtracts $757.50 from the eligible $771 per month benefit to arrive at what, if any, they will pay. In this example, those eligible to receive SSI benefits could receive, from SSA, $13.50 per month ($771 – $757.50 = $13.50).

It should be noted that this example only applies to those applying for SSI benefits. Income rules are different for those applying for SSDI. If done correctly you could pay your special needs children an income without completely disqualifying them from Social Security benefits. A qualified Certified Financial Planner (CFP), Chartered Special Needs Consultant (ChSNC), Certified Public Accountant (CPA), or tax attorney can help you navigate the technical details of this strategy.

Trusts – Another Option for Paying Your Special Needs Child

Another way of shifting money to your special needs children via your business is to shift income-producing assets out of the business into a special type of trust that can benefit your children today and in the future.

Generally, utilizing trusts is a way for you to pass your assets to a beneficiary of your choice with the help of a trustee. Trusts can be revocable (able to be changed or canceled by the creator ) or irrevocable (unable to be changed or canceled by the creator). Yet, more importantly, trusts can help you minimize taxes for you and your beneficiaries, they can protect your assets, and they can help your beneficiaries avoid the probate process upon your death.

Unfortunately, many parents do not work with the appropriate professional advisors, and they transfer money to their children through traditional revocable or irrevocable trusts. Once your children take ownership of one of those trusts, though, they are excluded from government benefits if the assets are greater than $2,000 (for single children). Therefore, if you have special needs children, you need to look at creating a special needs trust for them.

Self-Settled Special Needs Trusts

First, if your children earn income from working in your business, your children can transfer the money they receive into trusts they create themselves. Self-settled, special needs trusts are ones that are created by the owners – your children. However, when your children put money into the trust, they have to make the beneficiary either the state or Medicaid. Thus, upon your children’s death, the money goes to the state or to Medicaid to pay back benefits that were given to your children over time. If any money is left over, it would then be able to be transferred to another heir or beneficiary.

Third-Party Special Needs Trusts

If a self-settled trust doesn’t sound like your cup of tea, you can open a third-party special needs trust on behalf of your children. In a third-party special needs trust, you can funnel money from your business into an irrevocable trust that removes the money from the children’s estates. Thus, the trust does not have to repay the state or Medicaid. Instead, if the child passed away, the money would seamlessly transfer to another heir or beneficiary.

Choosing the Right Special Needs Trust

Essentially, which trust you choose is about control. Where do you want the money to go – to your children or to a trustee on behalf of your children? Much of that will depend on your children’s ability levels. It may also depend on how much money you think is needed to take care of your special needs child.

I cannot emphasize one point enough. You MUST talk to professional financial planners, estate planners, tax advisors, AND attorneys. Although Jonathan and I are CFPs^®, we do not know your particular situation. We know that you want to take care of your children, and if they have disabilities, you want to ensure they are taken care of throughout your life and after your death. Therefore, if you are considering hiring your special needs child to your business use this information as a starting point, not as tax or Social Security advice.

Continue with more hiring, automotive, taxes, and other Cash Flow reduction articles in our series: Personal Finance for Business Owners.