Can a newborn be an employee for tax purposes?

The payroll tax exemption for children working in a parent's business is real, and it is often combined with the income tax benefit of the child's standard deduction. Some promoters take the idea to an infant, arguing that a baby can "model" for marketing or that the law has no minimum age. Neither argument turns a payment into wages for services.

The claim is often paired with a suggestion to open a retirement account for the baby funded by the "wages." A Roth IRA contribution requires earned income, and payments that are not wages for services are not earned income. If the payment fails as wages, the contribution can become an excess contribution subject to a 6% annual excise tax under IRC §4973 until it is corrected.

IRC §3121(b) defines employment for Federal Insurance Contributions Act (FICA) purposes and excludes, in §3121(b)(3)(A), "service performed by a child under the age of 18 in the employ of his father or mother." The IRS explains that this applies when the child works for a parent's sole proprietorship or for a partnership in which each partner is a parent of the child. The IRS also states that payments for the services of a child under 21 are not subject to federal unemployment (FUTA) tax.

The exclusion is for service performed in an employment relationship. Wages are pay for services, and the employer's deduction under IRC §162(a)(1) is limited to reasonable compensation for services actually rendered. A newborn cannot perform services, so there is no employment relationship, no wages, and no deduction.

Examiners reviewing family payroll follow the employment tax guidance in IRM 4.23.5 and will ask what work was done, when, and how the rate was set.

For income tax, the child's 2026 standard deduction is the greater of $1,350 or earned income plus $450, up to $16,100, under Rev. Proc. 2025-32.

That benefit also depends on the income being earned income, meaning pay for work.

It is true that a parent's sole proprietorship can pay a child under 18 for real work without Social Security and Medicare taxes, and that the pay can be deductible to the business. It is true that the child's wages can be sheltered from federal income tax up to the standard deduction.

It is not true that an infant can be an employee. Photographing a baby for marketing is a personal matter for the parent, not a job the baby performs. It is also not true that the exemption applies to an S corporation or C corporation owned by the parents; wages paid by a corporation are subject to FICA regardless of the employee's age.

It is also not true that reporting the payment on a W-2 settles the question. A W-2 reports what an employer claims it paid for services. If the IRS finds that no services were performed, it can disallow the deduction, treat the payment as a personal transfer, and assess penalties, regardless of what forms were filed.

If your children are old enough to work, give them real, age-appropriate tasks and document the work with a job description and timesheets. Pay a rate you can support by comparing it with what you would pay someone else. Run payroll, issue Form W-2, and deposit the pay into an account in the child's name.

Confirm your business structure. If you operate as an S corporation, the FICA exemption does not apply to wages it pays, although the wages may still be deductible. Some families pay children through a separate sole proprietorship or parents-only partnership that has its own real business activity, which requires careful setup and records.

Check state child labor rules, and keep the pay proportionate to the work. The IRS evaluates the whole arrangement, not only the paperwork.

We review whether your business structure qualifies for the family payroll exemption, set up payroll and time records for children who actually work, and check the pay rate against the work performed.

Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.