Can You Get a Tax Break for Hiring Your Child in Your Business?
If you own a business and have a child who's old enough to perform legitimate work for it, putting your child on the payroll can create an interesting tax-planning opportunity.
Instead of giving your child money from your after-tax income, you may be able to hire your child in your business, deduct the wages and shift some income to your child.
Depending on your business structure and your child's age, those wages may even escape Social Security, Medicare and federal unemployment taxes.
And because your child has their own standard deduction, some or all of the wages may be free from federal income tax to the child.
Done correctly, hiring your child can keep more money in the family while giving your child actual work experience and an opportunity to begin saving for the future.
Done casually, however, it can create problems with the IRS.
Here's how the strategy works in 2026.
Can I Deduct Wages I Pay My Child?
Yes, if your child is legitimately working for your business and the compensation is reasonable for the work performed.
That's the critical distinction.
You can't simply give your 12-year-old $15,000, call it "wages" and take a business deduction.
Your child needs to perform actual services for the business, and the amount you pay needs to be reasonable considering the type and amount of work performed.
Depending on your business, legitimate work might include tasks such as:
- filing and organizing documents;
- cleaning the office;
- assembling mailings;
- basic administrative work;
- inventory assistance;
- photography or modeling for legitimate business marketing;
- website or technology work;
- social media assistance appropriate to the child's skills;
- answering phones or preparing mail; or
- other age-appropriate work your business actually needs.
The business gets a deduction for qualifying wages just as it would when paying another employee.
But what makes employing your child especially interesting is what can happen on the child's tax return.
How Much Can My Child Earn Tax-Free in 2026?
For 2026, the standard deduction for a single taxpayer is $16,100.
That means a child with $16,100 of qualifying wage income and no other income affecting the calculation could potentially owe zero federal income tax on those wages.
Meanwhile, the parent's business receives a deduction for the $16,100 of legitimate wages it paid.
Compare that with simply giving your child $16,100.
A gift isn't a business deduction. You generally earn the money, pay the applicable taxes and then give what's left to your child.
When your child legitimately works for the business, you're paying a deductible business expense rather than making a personal gift.
How Much Could Hiring My Child Save in Taxes?
The exact savings depend on your income, tax bracket, state taxes, business entity and several other factors.
But consider a simplified example.
Suppose a Schedule C business owner pays a 13-year-old child $16,100 during 2026 for legitimate work.
The child potentially owes no federal income tax because the wages are covered by the child's $16,100 standard deduction.
The parent receives a $16,100 business wage deduction.
Under one example using a 24% federal tax bracket, 5% state tax rate and certain self-employment tax assumptions, the combined tax benefit to the parent can approach $6,000 after considering the effect of the Section 199A deduction.
The actual number could be considerably different for your family.
The important concept isn't a particular dollar amount.
It's that the business gets a deduction while the income is shifted to a family member who may pay little or no federal income tax on it.
Does Hiring My Child Affect My QBI Deduction?
Yes, and this is an important part of the calculation.
If you qualify for the Section 199A Qualified Business Income deduction, wages paid to your child reduce the business's profit.
That generally reduces your qualified business income as well.
For someone receiving the full 20% QBI deduction, the additional wage deduction may therefore reduce the QBI deduction.
In other words, you shouldn't calculate the tax benefit of hiring your child based solely on your federal income-tax bracket.
But there's an interesting flip side for some higher-income taxpayers.
When the Section 199A wage limitation applies, the W-2 wages paid by your business can potentially help support a larger QBI deduction.
So depending on your income, hiring your child could either reduce or potentially increase the Section 199A benefit.
This is another reason to calculate the entire tax result rather than looking at one deduction in isolation.
Do I Have to Pay Payroll Taxes When I Hire My Child?
Maybe not.
This is one of the biggest advantages available to some parent-owned businesses.
When a child under age 18 works for a parent's sole proprietorship, qualifying wages are generally exempt from Social Security and Medicare taxes.
The exemption can also apply to a partnership when each partner is a parent of the child.
In addition, qualifying wages paid to a child under age 21 can generally be exempt from federal unemployment tax.
That can make hiring a child particularly tax-efficient for a Schedule C business.
What If My Business Is a Single-Member LLC?
A single-member LLC doesn't necessarily lose the favorable family-employment rules.
If your single-member LLC is disregarded for federal tax purposes and taxed as a sole proprietorship, qualifying wages paid to your child can receive the same favorable payroll-tax treatment.
A qualifying spouse-owned LLC taxed as a partnership may also receive favorable treatment when both partners are parents of the child.
But the answer changes when the business is taxed as a corporation.
Can My S Corporation Hire My Child?
Yes, but the payroll-tax treatment is different.
An S corporation can absolutely hire an owner's child for legitimate work and deduct reasonable wages.
However, the special parent-child payroll-tax exemption generally doesn't apply.
Why?
Because your S corporation is your child's employer—not you personally.
A corporation isn't the child's mother or father.
As a result, wages paid by an S corporation to an owner's child generally remain subject to the normal Social Security and Medicare taxes and applicable unemployment taxes.
The same basic issue applies to a C corporation.
That doesn't mean hiring your child through a corporation is a bad idea. The wage deduction and income-shifting benefits can still make it worthwhile.
It simply means the overall tax savings may be smaller than they would be through a sole proprietorship.
Business Structure Can Make a Big Difference
This creates an interesting tax-planning issue for business owners deciding between a sole proprietorship and an S corporation.
An S corporation may offer significant tax advantages in other areas.
But when it comes to hiring minor children, the sole proprietorship can have an advantage because of the special payroll-tax rules.
That's why entity selection shouldn't be based on one tax rule.
You have to look at the complete picture, including:
- business profit;
- reasonable compensation;
- self-employment and payroll taxes;
- the Section 199A deduction;
- wages paid to family members;
- retirement planning; and
- administrative costs.
The entity that produces the lowest tax in one area may cost more somewhere else.
Can My Child Put the Wages Into a Roth IRA?
Yes—and this can be one of the best long-term benefits of hiring your child.
Wages from a legitimate job are earned income.
Earned income can make your child eligible to contribute to an IRA, subject to the applicable annual contribution limits.
For 2026, the IRA contribution limit is $7,500, although your child can't contribute more than the amount of qualifying earned income they have for the year.
If your child is already paying no federal income tax because their income is covered by the standard deduction, a Roth IRA can be particularly attractive.
Why take a traditional IRA deduction when the child already owes no federal income tax?
A Roth contribution doesn't produce a current deduction, but qualifying growth and withdrawals can ultimately be tax-free.
For a teenager with decades before retirement, that long investment horizon can be extremely valuable.
Can My Child Earn More Than $16,100?
Absolutely.
The $16,100 figure isn't a limit on what your child can earn. It's the 2026 standard deduction amount used in determining how much income may be sheltered from federal income tax.
For example, suppose your child earns $23,600.
If otherwise eligible, the child could potentially contribute $7,500 to a deductible traditional IRA.
Combining a $7,500 traditional IRA deduction with the $16,100 standard deduction could potentially shelter the full $23,600 from federal income tax.
Whether a traditional IRA makes more sense than a Roth is a separate planning question.
If your child already owes no tax, we generally want to consider the long-term benefits of the Roth before chasing a current deduction that may have little value.
Does the Kiddie Tax Apply to My Child's Wages?
Generally, the special kiddie-tax rules apply to certain unearned income, such as investment income.
Wages your child legitimately earns by working for your business are earned income.
So the fact that your child is a minor doesn't automatically subject those business wages to the kiddie tax.
How Young Can a Child Be and Work for a Parent's Business?
Federal tax law doesn't establish a simple minimum age for employing your child.
There have been tax cases involving legitimate employment of children as young as seven.
But don't interpret that as permission to manufacture a job for a very young child.
The fundamental requirements still apply:
Your child must actually perform services for the business, and the compensation must be reasonable for those services.
The younger the child and the larger the wage, the more important it becomes to have a credible explanation and documentation supporting exactly what the child did.
Don't Forget Child Labor Laws
Tax rules aren't the only rules that apply when you hire a child.
Federal and state labor laws also matter.
Federal law provides significant flexibility when parents employ their own children in businesses they solely own, but there are important exceptions.
Children can't simply be placed in dangerous jobs because their parents own the business.
Restrictions can apply to hazardous occupations involving activities such as:
- manufacturing or storing explosives;
- certain motor-vehicle operations;
- logging and sawmilling;
- power-driven woodworking or metal-forming equipment;
- meat-processing equipment;
- certain power-driven machinery;
- demolition;
- roofing; and
- excavation.
State child-labor requirements can impose additional restrictions, so the employment arrangement needs to satisfy both tax and labor rules.
How Do I Prove My Child Really Works for the Business?
This is where a good tax strategy can fall apart if the business owner gets sloppy.
The IRS and courts can scrutinize wages paid between family members more closely than wages paid to unrelated employees.
You want to be able to demonstrate two things:
- There is a legitimate employer-employee relationship.
- Your child actually performed services for the business.
The best approach is to treat your child like a real employee—because that's exactly what you're claiming they are.
Keep Time Sheets
Have your child record the work performed and hours worked.
A simple contemporaneous time sheet can be excellent documentation.
Ideally, the child records the hours as the work is performed rather than trying to recreate an entire year's work in December.
For example:
September 14 — organized customer files — 1.5 hours.
That's much more credible than an unsupported year-end claim that your 12-year-old "worked about 300 hours."
Pay a Reasonable Wage
The wage should make sense for the work your child performs.
If you would pay an unrelated person $15 an hour to perform the same work, paying your child $75 an hour simply to maximize a tax deduction is going to be difficult to defend.
On the other hand, a child with specialized skills may legitimately command a higher wage.
For example, a teenager who's skilled at website development, video editing, graphic design or another technical service may perform work worth substantially more than minimum wage.
Document how you determined the rate.
Actually Pay Your Child
Don't simply make a bookkeeping entry saying you paid your child.
Use payroll and create an audit trail showing the money moving from the business to the child.
The money should go into an account belonging to the child.
And remember:
Once you pay your child, it's your child's money.
You don't get to call it wages for tax purposes and then immediately take the money back for your own personal expenses.
Put Your Child on W-2 Payroll
Hiring your child isn't a shortcut around payroll compliance.
Complete the appropriate employee and payroll paperwork and issue the required W-2.
Depending on the circumstances, that can include forms such as:
- Form W-4;
- Form W-2 and Form W-3;
- Form 941; and
- Form 940.
If you're using a payroll service and your child qualifies for the parent-child payroll-tax exemptions, make sure the payroll provider understands the relationship and applies the rules correctly.
Don't assume the payroll software will automatically know that the employee is your child.
What Happens If I Don't Keep Good Records?
You can lose the deduction.
Tax courts have rejected or dramatically reduced deductions claimed by parents who couldn't prove how much their children worked, how the children were paid or how their compensation was determined.
That's why this strategy should never be approached as:
"I'll just pay my kid $16,100 so I can deduct it."
The correct order is:
"My business needs legitimate work performed. My child can perform that work. What would reasonable compensation be, and how do I document the employment correctly?"
The tax savings come after that.
Should I Hire My Child in My Business?
If your child can perform legitimate, age-appropriate work your business actually needs, hiring them can create several potential benefits:
- Your business may deduct reasonable wages.
- Your child may pay little or no federal income tax on some of those wages.
- Certain parent-owned businesses may avoid Social Security and Medicare taxes on wages paid to children under age 18.
- Qualifying wages paid to a child under age 21 may be exempt from federal unemployment tax in certain parent-owned businesses.
- Your child gains earned income that can support an IRA contribution.
- You can move money to your child through legitimate compensation instead of a nondeductible personal gift.
- Your child gets actual work experience and learns how earning, saving and investing work.
But the strategy works only when the employment is real.
Talk to Ken-Mar Tax Before Adding Your Child to Payroll
Hiring your child can be an excellent family tax-planning strategy, but your child's age, your business structure, the work performed, the amount of compensation and your own tax situation all affect the result.
Ken-Mar Tax can help you determine whether hiring your child makes sense, calculate the potential tax savings, evaluate the effect on your Section 199A deduction and make sure the payroll arrangement is structured correctly.
If your child is already helping with your business and you're simply handing them spending money, it may be worth asking whether putting them legitimately on payroll would create a better tax result for the entire family.
