Why should I hire my kids?


Hire Your Kids and Save Taxes

Engaging your children in your business operations can offer multiple benefits, both for your business’s financial health and your children’s personal development.

Below are several compelling reasons why you should consider hiring your kids.

1. Tax Benefits

Hiring your kids in your family-owned business can provide tangible tax advantages.

  • Children under the age of 18, employed in a parent-owned business, are not subject to Social Security or Medicare taxes, provided the business is a sole proprietorship or a limited partnership where both partners are parents of the child.
  • You can deduct the salaries you pay your children from your business income, reducing your overall taxable profit.
  • The amount you pay your child is taxed at the child’s tax rate, which is likely lower than yours if you’re in a higher tax bracket.

2. Asset Transfer and Wealth Building

Another added benefit of hiring your kids is the opportunity to transfer assets.

For instance, the wages you pay to your children can be deposited into a savings account under the child’s name, a Coverdell Education Savings Account, or a Roth IRA, allowing parents to transfer wealth without incurring gift or estate taxes while preparing their children for future financial needs.

3. Personal Development & Skill Acquisition

Hiring your kids is an excellent way to impart essential business skills.

Whether it’s problem-solving, hard work, discipline, financial literacy, goal-setting, or interpersonal skills, real-world experience is invaluable.

This can be beneficial for their career prospects in the long run and can foster entrepreneurial instincts.

4. Succession Planning

If your vision is to keep your business in the family for generations, introducing your children to the operations early can lay a solid foundation for succession planning.

It ensures business continuity and prepares your children to step into leadership roles confidently.

It’s important to keep in mind that all work and compensation must be appropriate for your child’s age, skills, and the value they bring to the business.

Further, all transactions should be kept professional-for instance, paying the child through regular payroll and reporting it accurately to the IRS.

In conclusion, hiring your children can offer tax advantages, enable wealth building, provide valuable life skills, and assist in succession planning.

It can indeed be a strategic choice worth considering!

Employing Your Children

If you have children between the ages of 7 and 22, you can use this strategy to save some money. Here is how it works:

  • Your company is able to pay each of your children an annual salary of $13,850.
  • This is an important amount because it is the standard deduction amount for single individuals.
  • Your business gets to take a deduction for the payment, thus decreasing your taxable income.
  • Your children will then file their own tax return, but since they only made $13,850, they pay no federal income tax because the standard deduction of $13,850 makes their taxable income zero.
  • So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!

This strategy can also be combined with IRA and 401k strategies to really maximize the benefit.

For instance, if you paid each child $18K as a salary, you could put $5K into an IRA that is deductible, and you could use their standard deduction to take their taxable income to zero.

In that case, your business can deduct $18K per child, but again, there is no taxable income.

Then imagine if you substitute the 401k for the IRS, then you could get up to about $32K of salary for each of them with no taxable income.

This is a very important strategy.

As long as your kids are doing legitimate work for your business, you can hire them tax-free.

Hiring your own children can indeed confer certain tax advantages, but it’s essential to understand the specific IRS rules and regulations to ensure the process is compliant.

When your child is doing legitimate work for your sole proprietorship or a partnership where each partner is a parent of the child, payments for their services are generally not subject to Social Security and Medicare taxes if the child is under 18.

However, the income they earn should be reported, and they are subject to income tax above certain limits.

Moreover, there might be a significant advantage if your child makes less than $13,850 a year, potentially exempting their income from federal income tax.

This can, for instance, allow them to create an IRA and start saving for retirement early or even offset education costs.

Remember, the work your child performs must be legitimate and age-appropriate.

The wages should also be comparable to what you would pay another employee doing the same job.

Lastly, ensure that you maintain proper documentation, just like you would for any other employee.

This includes records of employment, time sheets, and payments.

In summary, hiring your children can have tax benefits, but that does not mean all their earnings are tax-free.

Always consult a tax professional to better understand your situation and how the law applies to you. Navigating the tax code can be complex and confusing, so it’s important to seek guidance from someone who is experienced in tax laws and regulations. A tax professional can help you understand any potential tax implications and provide advice on how to best manage your financial affairs. They can also provide valuable insight into tax resolution intricacies, such as negotiating with the IRS or managing tax payment plans. It’s always best to seek professional guidance to ensure compliance with tax laws and to minimize any potential financial burdens. Understanding currently not collectible status on taxes can be complex, and it’s important to have an expert guide you through the process. A tax professional can help you navigate the rules and requirements for declaring currently not collectible status, as well as understand the impact it may have on your financial situation. By seeking professional advice, you can ensure that you are making the best decisions for your specific circumstances. Understanding tax resolution options is essential for navigating the complex and ever-changing world of taxation. A tax professional can help you explore options such as installment agreements, offers in compromise, and innocent spouse relief to find the best solution for your specific circumstances. It’s important to have a knowledgeable professional on your side to ensure that you are taking advantage of all available options and making informed decisions regarding your tax obligations.

Benefits of hiring your child

How much can I pay my child to work for my business?

As long as they are doing legitimate work for your business, you can hire your children tax-free and pay each of them up to $13,850 per year.

It’s true. And all of this while they earn a little money and start saving for college or that first business. It is tax-free.

You may want to hire your child(ren) to work in your business. And you want to do it for many good reasons: to teach them about entrepreneurship, develop a strong work ethic, and for the tax-free income of up to $13,850 per child.

You can hire your kids and pay each of them up to $13,850 per year, tax-free.

If you hire your son to stuff envelopes and your daughter to update your website, then you can lower your personal income by $27,700!

Simply by engaging your children in the family business.

If they stay under this limit, they do not even have to file a tax return, which means they do not, which means they don’t pay any income tax on it.

And you get to deduct their wages, which lowers your business’ taxable income.

As long as your kids are doing legitimate work for your business you can hire your kids.
As long as your kids are doing legitimate work for your business, you can hire them.

So you may want to hire your child(ren) to work in your business.

And you want to do it for many good reasons:

to teach them about entrepreneurship, develop a strong work ethic, and for the tax-free income-up to $13,850 per child.

BUT WAIT. THERE’S MORE.

The IRS will reward you for it!

If you have children between the ages of 7 and 22, you can use this strategy to save some money. Here is how it works:

  • Your company can hire each of your children and pay them $13,850 a year. This is an important amount because it is the standard deduction amount for single individuals.
  • Your business gets to take a deduction for the payment, thus decreasing your taxable income.
  • Your children will then file their own tax return, and since they only made $13,850, they pay no federal income tax because of the standard deduction of $13,850, so their taxable income is zero.
  • So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!

This strategy can also be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $13,850 as a salary, you could put $6,925 into an IRA that is deductible, and you can use their standard deduction to take their taxable income to zero.

In that case, your business can deduct $20,775 per child, but again, there is no taxable income.

If you want to save money, then hire your kids and make sure they actually work!

Keep track of the hours and tasks your children perform, and make sure they’re age-appropriate.

DOL Rules Regarding Youth & Labor

The IRS isn’t going to believe your 5-year-old earned $13,850 analyzing dental records.

But that 5-year-old can model those pearly whites in photographs to be used on your website or brochure!

It’s easy to document an “image agreement” that pays an ongoing licensing fee right from the start.

As long as your kids are doing legitimate work for your business you can hire your kids.

As long as your kids are doing legitimate work for your business you can hire your kids.

So you DO NOT have to pay payroll taxes for employing your kids if your business is a sole-proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse

Using this strategy, rather than just dumping change into their jar (money you likely paid personal taxes on), you’ve moved those taxable dollars from your tax rate to your child’s tax rate and bracket, which is zero, and you still keep the money in the family!.

There are countless jobs kids can do for you, and remember, you can pay them at the same rate you would pay any other employee or outsourced company.

  • Cleaning the office
  • Washing company cars
  • Updating customer lists on the computer
  • Simple to advanced Data-entry
  • Transcribing video or audio
  • Trips to the post office or general errands
  • Helping at the office, passing out handouts, and more
  • Walking door to door, placing fliers for your business
  • Updating your social media accounts (They won’t even equate this as work!)

But then, let’s say, after reading the guide, you find out that this strategy “doesn’t work” if your business is a corporation.

The Corporation “Problem,” and Its Simple Solution to Hire You Kids

There are different rules for different types of businesses. And that when the owners of a corporation hire their child, there are still payroll taxes like FICA to deal with.

If a child under the age of 18 works for their parent in an unincorporated business, you might not need to deduct FICA tax from their earnings.

However, there is no FICA or FUTA exemption for employing a child in an incorporated business (S or C Corp) or in a partnership that includes non-parent partners.

In these cases, the children are subject to the same withholding rules that apply to all other employees.

So you do not have to pay payroll taxes for employing your kids if your business is a sole proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse.

But if your business is a corporation, the IRS’s rules are clear. You must pay payroll taxes on income given to your children.

So are you stuck if your small business is set up as an S or C corporation? Or if you’re planning on switching to an S Corp. like we normally recommend for maximum tax advantages,

Well, it turns out there is a workaround.

As one high-profile tax strategist says, In order to lower your tax, just change the facts. Here’s how to do it.

The Payroll Tax Workaround to Hire Your Kids-a family management company

If your business is set up as an S or a C corporation or as a partnership with other non-parent partners, the IRS says you have to withhold payroll taxes when employing your kids.

But there is a way to get around this restriction by utilizing a little creativity and a “hybrid” approach.

Instead of paying your children directly from your S Corp, you pay them out of a family management company.

You can create this simple family management company as a sole proprietorship separate from your S Corp. and owned by yourself or your spouse.

The family management company’s only purpose is to support the operations of your corporation, which can include the scheduling and monitoring of jobs done by your child(ren) and all the bookkeeping and documentation necessary to keep the jobs within IRS standards.

The family management company charges the corporation a management fee for these services and can then pay your child, which removes them from your corporate payroll.

Additionally, because the family management company is a sole proprietorship that belongs to a parent, you, or your spouse, it qualifies for the IRS exemption that exempts it from having to withhold payroll taxes.

By following this workaround, you’ve found a way to truly pay your kids $13,850 per year tax-free using nothing but the IRS’s own rules.

For more tax-saving tips, check out my blog on Tax Deductions vs. Tax Credits! Then put on your HR hat, because you’ve got some little new hires to train! And while you’re at it, consider utilizing streamlined IRS tax relief services to help navigate any tax challenges and maximize your savings. With the right tools and resources, you can take the stress out of tax season and focus on growing your business. Don’t let tax deductions and credits overwhelm you – arm yourself with the knowledge and support you need to succeed.

As long as your kids are doing legitimate work for your business you can hire your kids.

Frequently Asked Questions

Your child will only need to pay taxes on the salary you give them if it goes beyond the standard deduction for the year, which thankfully, is quite generous. For the tax year 2023 (which you’ll file by April 2024), the standard deduction is $13,850 for single filers. In the following year, 2024 (for taxes due in April 2025), this amount increases to $14,600. This means your child can earn up to these amounts without owing any income tax on their earnings. For more information, connect with Jones Tax Relief .

If you’re a business owner, you might be thinking about paying your kids a salary. In 2023, you can pay each child up to $13,850, and in 2024, up to $14,600 without them owing any federal income tax.

However, paying children involves following specific Internal Revenue Service (IRS) rules to ensure everything is above board and you can legally claim these tax benefits: One important rule to follow is to document the work that the child is doing and keep detailed records of the payments made. This will be important to have in case of an audit by the IRS. Additionally, it’s important to consider how these payments will affect any IRS payment plan options that you may have in place. Always consult with a tax professional to ensure that you are in compliance with all IRS rules and regulations when paying children for work.

  • Assign Real Jobs: Make sure the work your child does is essential for your business. It should be a legitimate job within the business operations—personal chores like yard work don’t qualify.
  • Appropriate Tasks: The type of work should be suitable for their age. For example, it’s reasonable to hire a teenager to help with physical tasks like cleaning a warehouse, but it’s not believable (or legal) to say a young child is managing your accounts.
  • Fair Wages: Pay your child a fair wage comparable to what you might pay another employee for the same job. Overpaying them can raise red flags with the IRS.
  • Adhere to Employment Laws: Treat your child like any other employee. This includes following standard practices for tax withholding, submitting the necessary forms, and adhering to employment laws.
  • Maintain Detailed Records: Keep thorough records of the hours they work, the wages they earn, and the taxes that are paid. Good documentation will support the legitimacy of the employment.
  • Understand Tax Responsibilities: Depending on their age and the structure of your business, the wages you pay your kids may be exempt from Social Security, Medicare, and unemployment taxes. Make sure you know what taxes apply.
For the tax year 2023 (which you’ll file in April 2024), the standard deduction for single filers is $13,850 annually.

Paying your child for work in your business can provide tax-free income under certain conditions, but it’s important to understand the IRS rules to ensure compliance. Here’s how you can pay your child tax-free:

  1. Eligibility for Tax-Free Income: If you’re considering paying your kids, their earnings can be exempt from federal income taxes if they earn less than the standard deduction for a single filer, which is $13,850 as of 2023. This means any income they earn up to this amount can essentially be tax-free.
  2. Avoiding Social Security and Medicare Taxes: When your child performs legitimate work for your sole proprietorship or a partnership where each parent is a partner, the payments for their services are not subject to Social Security and Medicare taxes if the child is under 18. This adds another layer of savings since these contributions would otherwise be required.
  3. Appropriate and Legitimate Work: To legitimately employ and pay your child tax-free, the work they do must be real, necessary for your business, and age-appropriate. For example, paying a teenager to handle filing and basic office tasks is acceptable, while claiming a young child is doing complex accounting would not be reasonable.
  4. Paying Fair Market Wages: The compensation your child receives should be comparable to what you would pay any other employee for similar work. This helps ensure that the arrangement stands up to IRS scrutiny.
  5. Consulting a Tax Professional: While you can pay your kids and potentially provide them with tax-free income, the rules can be complex, depending on your business structure and other factors. Always consult a tax professional to understand how these rules apply specifically to your situation and to ensure that you remain compliant with all IRS requirements.

Hiring your kids in your business can be smart for your taxes. Here’s how it works:

For kids under 18, the good news is you don’t have to pay Social Security, Medicare, or unemployment taxes on their earnings. This makes it simpler and cheaper to have them on the payroll. Plus, you can deduct what you pay them from your business income, shifting some of your earnings to their lower tax bracket.

If your business is set up as a sole proprietorship, an LLC, or a partnership (where you and your spouse are the partners), paying your kids is straightforward with these tax breaks. But if you’re running an S corporation or C corporation, you’ll need to handle payroll taxes for any child you employ.

Now, once your kids turn 18, things change a bit. You’ll start needing to pay those Social Security and Medicare taxes. And if they’re 21 or older, you’ll also pay unemployment taxes on their wages.

Regardless of how old they are, you can generally claim them as dependents as long as they qualify, which can give you even more tax benefits.

So, employing your kids not only gives them valuable work experience but can also help reduce your tax bill—a win-win! Just remember, any pay must be for real work done, and it needs to be a reasonable wage for the job.



The answer depends on their age and the type of work. If they’re working for your business, follow the steps of the second question for paying a child employee. For more information and insider insights, get in touch with Keith Jones CPA.

There’s no way to completely eliminate taxes, but you can minimize their federal income tax burden by following the tips above: fair pay, staying under the standard deduction, and proper documentation.

Tax regulations change from year to year. For 2022 specifics, consult Keith Jones for a better understanding.

Your business can pay your child up to the fair market rate for the work performed, regardless of your relationship. However, there might be tax implications, depending on your business structure. For more details, refer to question five.

Here’s a general guideline:

  • Choose appropriate work: Tasks should be genuine business needs your child can handle for their age.
  • Fair compensation: Pay at least the fair market rate for similar work. This avoids issues with the IRS.
  • Documentation: Keep detailed records of hours worked, tasks completed, and pay.
  • Tax implications: Consult a tax professional for specifics on your business structure (sole proprietorship, LLC, etc.) They can advise on potential tax benefits and ensure you’re following regulations.

For more information regarding how to hire your child, back tax help, optimum tax relief, estate planning service, or wage garnishment attorney – don’t hesitate to give us a call.

The amount depends on the services provided and tax regulations. Generally, you need to issue a 1099-NEC if you pay a family member (or anyone else) $600 or more for services rendered in a tax year. However, there are exceptions, so consulting a tax professional is best to ensure you’re following IRS guidelines. Contact the best tax relief company, Keith Jones CPA.

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