Married Filing Joint vs. Married Filing Separate
Thanks to recent tax law changes, the benefits of employing your child in your business are better than ever. While the One Big Beautiful Bill Act (OBBBA) eliminated personal exemptions, it also locked in a higher standard deduction that can create powerful savings for families who own businesses.
The Standard Deduction Advantage
For 2025, a single taxpayer—like your child—can earn up to $15,750 without owing any federal income tax. That means your child can receive wages from your business, pay zero in federal income tax, and you still get to deduct those wages as a business expense. It’s a win-win for the family.
Extra Benefits for Sole Proprietors and Family Partnerships
If your business is a sole proprietorship or a husband-and-wife partnership, you get the biggest breaks. Wages paid to your children under 18 are not subject to Social Security or Medicare taxes (FICA), and wages paid to children under 21 are exempt from federal unemployment taxes. That means every dollar you pay your kids reduces your taxable income without triggering extra payroll costs.
Example in Action
Let’s say you employ three children—ages 9, 11, and 13—and pay each the full $15,750 for legitimate work. That’s $47,250 in total wages:
- Your children pay no federal income tax on their earnings.
- You deduct the $47,250 from your Schedule C income, lowering both your income tax and self-employment tax.
- Depending on your tax bracket, the savings can easily reach five figures.
In short, your kids keep their earnings tax-free, and you keep more money in your pocket at tax time.
What About S Corporations and Other Entities?
S corporations, C corporations, and non-spouse partnerships don’t get the FICA and unemployment tax exemptions. Payroll taxes still apply. Even so, the strategy is often worthwhile because your child can still use the standard deduction to shield wages from federal income tax. After factoring in payroll costs and deductions, families often come out several thousand dollars ahead.
Why This Matters
When you employ your child, you aren’t just saving on taxes—you’re also giving them work experience and teaching them financial responsibility. Some families even use part of the earnings to fund a Roth IRA, creating tax-free growth that could benefit their child for decades.
Talk With Ken-Mar Tax
Every business and family situation is different. At Ken-Mar Tax, we’ll help you determine the best way to set this up, make sure the wages are legitimate, and keep you compliant with IRS rules. Done right, employing your child can be one of the most effective tax strategies available.
Schedule a free consultation today and let’s explore how this strategy can help your family and your business.
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Small Business Tax Services
As an expert in small business tax services and tax consulting Ken-Mar Tax eats, sleeps and breathes small business tax strategies. Being an enrolled agent allows founder, Ken Weinberg, to represent you to the IRS - something only a CPA, tax attorney and Enrolled Agent can do. EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS. It also means he is continuously being updated on the new IRS tax codes and taking classes from the IRS that provide guidance on how to file returns so that they are not "flagged."
When you get your taxes prepared by Ken Mar Tax you also have the option to purchase the Tax Audit Protection Plan to avoid the extra costs of paying for audit representation. If you are audited by the IRS, State of Ohio or local taxing authorities, Ken-Mar Tax will meet with the taxing authorities on your behalf to negotiate a settlement for you. The fee covers all costs up to the Appeals level, including up to 15 hours of correspondence with the auditing party – either the IRS, State of Ohio or locality.
