Hiring your child can be a legitimate tax-planning strategy for some business owners.
But it is not a government payment.
It is not a loophole.
And it is not a reason to put a child on payroll for work they never perform.
When structured correctly, your business may deduct reasonable wages for real services. Your child earns income, learns valuable skills, and may build savings for the future. Depending on your business structure and your child’s age, certain payroll tax exemptions may also apply.
The details matter.
A business owner hires a child to perform legitimate, age-appropriate work.
The business:
The child:
This strategy can potentially move income from a business owner’s higher tax bracket to a child’s lower tax bracket. However, the arrangement must reflect real work and follow employment, payroll, and tax rules.
“Documentation turns a family arrangement into a defensible business practice.”
The most important question is how your business is taxed.
Special family-employee rules may apply when the child works for:
Under IRS guidance, wages paid to a child under age 18 in one of these structures are generally exempt from Social Security and Medicare taxes.
Wages paid to a child under age 21 may also be exempt from federal unemployment tax, commonly called FUTA.
These exemptions do not eliminate every payroll responsibility. The wages remain subject to federal income tax withholding rules. The child may need to complete Form W-4, and the business must follow applicable payroll procedures.
The rules change when the child works for a corporation.
If your business is a C corporation or S corporation, the family-employee payroll tax exemptions generally do not apply. The child’s wages are typically subject to:
The same general treatment may apply to a partnership in which not every partner is the child’s parent.
Business owners should not choose or change an entity structure solely to pursue this strategy. Entity decisions affect liability, payroll, retirement plans, estimated taxes, and long-term planning.
The work must be real, necessary, and appropriate for the child’s age and ability.
Potential examples include:
The job should support an actual business need.
A child should not be paid simply because they are related to the owner. The IRS can question wages that appear excessive, unsupported, or unrelated to the business.
Avoid assigning a child responsibilities that require professional judgment, access to confidential information, or skills they do not possess. Follow federal and state child-labor rules as well.
Reasonable compensation is central to the strategy.
Ask:
A teenager performing basic filing and data entry should not receive the same wage as an experienced office manager.
A child creating professional video content may justify a different rate if they have the necessary skills and the work produces measurable business value.
Keep evidence supporting the rate. Comparable job listings, local wage information, written responsibilities, and supervisor notes can help establish that compensation is reasonable.
Treat your child like an employee.
That means building a clean administrative process from the beginning.
Describe:
Use time sheets, payroll software, or another consistent system.
Record:
Avoid estimates made months later.
Complete the appropriate onboarding forms, including Form W-4. Follow federal, state, and local payroll requirements.
Your payroll process may need to account for:
Wages generally must be reported on Form W-2, just as they are for other employees.
Do not report employee wages as contractor payments. Do not use informal cash payments that bypass payroll reporting.
Use a business check, payroll deposit, or another documented payment method.
A separate account for the child may be appropriate, especially when the goal includes building savings. The account should be established and managed according to the child’s age, ownership rules, and family’s financial plan.
Retain:
Good records protect the deduction and make the arrangement easier to review.
The business may be able to deduct eligible wages. That does not mean the wages are automatically tax-free.
The child’s federal income tax depends on factors such as:
A child may need to file a tax return. If income tax was withheld but the child ultimately owes no federal income tax, filing may allow the child to claim a refund.
Payroll tax treatment also varies based on business structure and age. The result for a 16-year-old working in a parent’s sole proprietorship may be different from the result for a 22-year-old working in an S corporation.
Hiring a child is one planning tool.
It should be evaluated alongside:
A strong tax plan looks at the entire household and business: not one isolated deduction.
At UniFirst Financial and Tax Consultants, our tax planning and financial services are designed to connect business decisions with retirement planning, investment strategy, and long-term wealth transfer.
The standard is simple: pay for actual work and report it accurately.
“Dishonest scales are an abomination to the Lord, but accurate weights are His delight.” : Proverbs 11:1
That principle applies to family payroll, business expenses, and every other tax-planning decision.
Do not invent hours.
Do not inflate wages.
Do not create a position that has no business purpose.
Do not assume an online tax tip applies to your specific entity.
Federal and state rules can change. A qualified tax professional should review the structure before you begin, particularly when the business is incorporated, the child is a minor, or the arrangement involves retirement accounts or investment income.
Hiring your child may create legitimate tax-planning opportunities in 2026. The strategy works best when the job is real, compensation is reasonable, payroll is accurate, and records are complete.
It is not guaranteed to reduce taxes.
It is not appropriate for every business.
And the government does not simply “pay you” for hiring your child.
It is a structured business arrangement that requires careful implementation.
Contact Us for Your Free Assessment
Schedule a no-obligation free assessment to review your business structure, family employment goals, and broader tax optimization strategy.
205 Van Buren St., Suite 120
Herndon, VA 20170
Phone: (888) 581-3320
Email: patrick@unifirstfinancial.com
Website: unifirstfinancial.com
Our strategies are unlike those offered anywhere else in the financial industry
- we offer a no obligation free assessment so you can put our claim to the test.