Can I legally hire my child in my business?

Yes. The IRS allows business owners to employ their children. The work must be legitimate, the pay must be reasonable for the tasks performed, and you must keep documentation such as timesheets and job descriptions.

Do I have to pay payroll taxes when hiring my child?

If the business is a sole proprietorship or a partnership where both partners are parents, children under 18 are exempt from FICA taxes. Children under 21 are exempt from FUTA. This exemption does not apply to S-Corps or C-Corps.

How much can I pay my child tax-free?

In 2025, a child can earn up to $15,000 (the standard deduction for single filers) before owing any federal income tax. In 2026, that rises to $15,400. They can also contribute up to $7,000 (2025) or $7,500 (2026) of that earned income to a Roth IRA.

family Audience: business 3 min read

Strategically Hiring Your Children for Tax Savings

Paying your kids to work in your business is one of the last great tax shelters. Shift high-tax income to a 0% bracket.

Last updated on March 12, 2026

You are paying for dance lessons, soccer camp, and video games with After-Tax dollars. If you hire your child, you can pay for those things with Pre-Tax business dollars. Plus, you start their retirement compounding 40 years early with a Roth IRA.

Key Takeaways

The Shift: You deduct the wage (saving ~30-40%). Child receives the wage (Taxed at 0% up to ~$15,000 standard deduction in 2025, $15,400 in 2026).
Payroll Tax Exemption: If the business is a Sole Prop/Partnership (parent-owned), children under 18 owe NO FICA taxes.
The Roth: Since the child has 'Earned Income', they can fund a Roth IRA.
Compliance: Work must be real. Pay must be reasonable. Evidence (timesheets) is mandatory.

Example

You: Tax bracket 37%.
Goal: Give child $10,000.
Normal Way: You earn ~$16,000, pay $6,000 tax, give child $10,000.
Hiring Way: Business pays child $10,000. Deduction saves you $3,700. Child pays $0 tax.
Net Win: You are $9,700 richer (The $3,700 savings + avoiding the $6k tax drag).

Jobs for Kids

7-10: Modeling (photos for website), Cleaning, Shredding.
11-14: Social Media, Data Entry, Packaging.
15+: Admin, Sales, Coding.

Document everything.

Important Compliance Details

The FICA exemption only applies to sole proprietorships and qualifying partnerships. If your business is an S-Corp or C-Corp, your child is treated like any other employee and payroll taxes apply. Some families use a “Family Management Company” (a sole-prop LLC) to preserve the exemption while routing work to the operating entity.

Also note: your child’s earned income must stay below the standard deduction to avoid triggering income tax on their wages. For 2025, that threshold is $15,000 ($15,400 in 2026).

SE Tax Savings: Understand the self-employment tax you are offsetting by shifting income to your child.
Entity Matters: Your business structure determines whether the FICA exemption applies. See also our LLC taxes explained and S-Corp tax strategies guides.
Tax Brackets: Understand how tax brackets work to see why shifting income from a 37% bracket to a 0% bracket is so powerful.
More Deductions: Explore additional small business tax deductions you might be missing alongside this strategy.

How sharper.tax Helps

sharper.tax analyzes your uploaded return and identifies income-shifting opportunities, including the tax benefit of employing family members. We calculate the combined savings from the business deduction and the child’s zero-percent bracket so you can see the real dollar impact. Sophisticated tax planning used to require a high-end CPA --- we make it available for free.

Sources

The information above is educational and not tax advice.