Can I put my newborn on payroll?
The claim: “Putting your newborn on payroll is a smart tax move.”
False: no services, no wage deduction
No. IRC §162(a)(1) allows a deduction only for a reasonable allowance for compensation for personal services actually rendered, and Treas. Reg. §1.162-7(a) asks whether payments are reasonable and are in fact payments purely for services. An infant cannot perform business services, so wages paid to a newborn are not deductible. Older children who do real work at reasonable pay are a different matter.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- Wage deductions require personal services actually rendered and reasonable pay for those services.
- A useful test is what you would pay an unrelated person for the same work.
- Payments with no services behind them are not wages; they are generally gifts or personal support.
- Children old enough to do real work can be employed, with timesheets, a job description, and payroll reporting.
- Payroll tax exemptions for a child employed by a parent depend on the child's age and the type of business entity.
Where the claim comes from
Hiring your children is a legitimate planning idea when the work is real. Online versions of the idea sometimes stretch it to infants, suggesting that paying a baby a salary moves income into the child's lower bracket.
The idea skips the first requirement of any wage deduction: someone has to actually perform services for the business.
What the law actually says
IRC §162(a)(1) allows a deduction for a reasonable allowance for salaries or other compensation for personal services actually rendered. Treas. Reg. §1.162-7(a) states that the test of deductibility for compensation is whether the payments are reasonable and are in fact payments purely for services, and §1.162-7(b)(3) limits the allowance to what is reasonable under all the circumstances.
Two requirements follow. First, services must be actually rendered. Second, the amount must be reasonable for those services, generally measured by what a business would pay an unrelated person for the same work. A newborn cannot answer phones, file documents, or perform any other business task, so there are no services to compensate.
Some social media versions point to photos of a baby used in marketing. Even there, the question is whether the arrangement is a genuine, reasonably priced business transaction, supported by records. Claiming full-time wages for an infant does not meet that standard. Payments that are not compensation for services are generally treated as personal: gifts or family support that the business cannot deduct under IRC §262.
For children who do real work, the IRS family employee guidance explains that payments for the services of a child under age 18 employed by a parent's sole proprietorship, or by a partnership in which each partner is a parent, are not subject to Social Security and Medicare taxes, and payments to a child under 21 are not subject to FUTA tax. Those exemptions do not apply when the employer is a corporation, including an S corporation.
What is true and what is not
It is true that you can employ your children in your business when they perform real work that fits their age and abilities, you pay them what you would pay someone else for that work, and you run the payments through payroll with proper records.
It is not true that a child's birth creates a deductible employee. No services means no deduction, regardless of the amount paid. Unsupported wages to family members can be disallowed and can draw the 20% accuracy-related penalty under IRC §6662.
- Real, age-appropriate tasks for the business.
- Pay comparable to what an unrelated worker would receive.
- Timesheets, a written job description, and payroll records.
- Actual payment to the child, such as into an account in the child's name.
- Form W-2 and payroll filings as required.
What to do instead
If you want to employ your children, wait until they can perform work your business actually needs, such as cleaning, filing, data entry, or social media support for older children. Write down the duties, set a rate you can support with local market data, and track hours as the work happens.
Check how your entity type affects payroll taxes before you start, and keep the wages consistent with the work. If a prior return deducted wages to a child who could not perform services, discuss correcting the return with a tax professional.
How ebotCPA helps
We evaluate whether family employment fits your business and entity, set up the documentation and payroll steps, and review any existing arrangements for risk.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
Assumptions: Tax year 2026; sole proprietorship owned by a parent.; Child A is 3 months old and performs no services. Child B is 15 and does 5 hours a week of filing and cleaning for 50 weeks.; An unrelated worker would be paid $12 per hour for Child B's tasks, based on local job listings.
| Child A: services actually rendered | None |
|---|---|
| Child A: deductible wages | $0 |
| Child B: hours worked (5 × 50) | 250 |
| Child B: reasonable wages (250 × $12) | $3,000 |
Under these assumptions, no wage deduction is available for the infant, while up to $3,000 of documented, reasonable wages to the teenager can be deductible.
Illustration only; not a projection of your results.
Frequently asked questions
How old does a child have to be to work in a family business?
The tax law sets no specific minimum age, but the child must actually perform services and be paid reasonably for them. State and federal labor rules also apply.
Can a baby be paid for modeling in my business ads?
Only if it is a genuine, reasonably priced arrangement for actual use of the child's image, supported by records. Ongoing wages for an infant are not supported.
Do I have to withhold Social Security tax from my child's wages?
Not if the child is under 18 and works for a parent's sole proprietorship or a partnership owned only by the parents. Corporations, including S corporations, must withhold.
What records do I need to employ my child?
A job description, timesheets, evidence of the market rate, payroll records, actual payment to the child, and Form W-2 where required.
Have facts like these?
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.