Hiring Your Children
When your child does real work in your business at a fair wage, the wage is deductible to you and largely tax-free to them. A child can earn up to the $16,100 standard deduction with no federal income tax. For a parent in the 32% bracket, that is about $5,150 of income tax kept each year, and the child can fund a Roth IRA with it.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed October 9, 2026
Who it fits
- Owners with real tasks a child can do: filing, cleaning, social media, data entry, modeling for marketing.
- Sole proprietors and partnerships owned only by the parents, where wages to a child under 18 are also free of Social Security and Medicare tax.
- Parents in high brackets who would otherwise pay for the child's expenses with after-tax money.
- Families who want to start a child's Roth IRA early.
Who it's not for
- Owners without real work for the child or who will not keep timesheets.
- Families who want to pay a wage above what the work is worth. The excess is not deductible.
- Parents expecting payroll tax savings through an S-corporation or C-corporation. That exemption does not apply to corporations.
How it works
The wage must be for services actually performed, and reasonable for the work. Pay what you would pay an unrelated person of the same age for the same job.
The business deducts the wage like any other. The child reports it as earned income. Earned income is not subject to the kiddie tax, which reaches only unearned income above an indexed threshold.
The child's standard deduction is $16,100 in 2026. Wages up to that amount carry no federal income tax for the child.
Payroll taxes depend on the entity. In a sole proprietorship, or a partnership whose only partners are the child's parents, wages to a child under 18 are exempt from Social Security and Medicare tax, and from federal unemployment tax until 21. In a corporation, normal payroll taxes apply.
Run it through payroll: Form W-4, a W-2 at year-end, a job description, timesheets, and pay deposited to an account in the child's name. With earned income, the child can contribute up to $7,500 or their wages, if less, to a Roth IRA.
Illustrative example
Illustrative: married parents filing jointly, 32% marginal bracket, own a sole proprietorship. Their 15-year-old works about 10 hours a week year-round on records and marketing, at a wage of $16,100 for the year.
- Wage deducted by the business: $16,100.
- Parents' federal income tax saved: $16,100 x 32% = $5,152.
- Child's taxable income: $16,100 wages - $16,100 standard deduction = $0. Child's federal income tax: $0.
- Social Security and Medicare on the child's wage: $0 (under 18, parent-owned sole proprietorship).
- Child contributes $7,500 of the wage to a Roth IRA.
The family keeps about $5,152 of federal income tax this year, plus self-employment tax savings, and the child starts a $7,500 Roth IRA.
The rules
| Rule | Citation |
|---|---|
| Wages are deductible only if reasonable and for services actually rendered. | IRC §162(a)(1); Treas. Reg. §1.162-7 |
| A child's compensation for services is the child's income, not the parent's. | IRC §73 |
| Services by a child under 18 employed by a parent are excluded from FICA employment. | IRC §3121(b)(3)(A) |
| Services by a child under 21 employed by a parent are excluded from FUTA employment. | IRC §3306(c)(5) |
Watch-outs
- No records, no deduction. Timesheets and a job description are what an examiner asks for first.
- A wage out of line with the work, or for a very young child doing adult tasks, invites a reasonableness challenge.
- Pay must actually go to the child. Money that stays in the parent's account looks like a paper transaction.
- Child labor laws still apply, including age and hour limits.
What we do
We check your entity, set a defensible wage for the job, and set up payroll, W-2s and the records file. Where the business is a corporation, we show whether a parent-owned management entity changes the math before you restructure anything.
Questions
How young can my child be?
There is no set age in the tax law. The work must be real and the pay reasonable for what a child that age can do. Younger children make the reasonableness case harder.
Can I pay more than $16,100?
Yes, if the work justifies it. Wages above the standard deduction are taxed to the child at their own rates, usually starting at 10%.
Does this work with an S-corporation?
The income tax shift works. The payroll tax exemption does not, because it applies only to sole proprietorships and partnerships owned by the parents.