Hiring your kids could be one of the best-kept tax secrets for family-run businesses.
Most small business owners with children don’t realize how powerful this strategy can be.
When you pay your kids for legitimate work, you reduce your tax liability and give your children hands-on experience with money.
This is a strategy I’m personally starting with my kids.
I plan to have them handle specific tasks like editing videos, creating ads, and managing my company's social media.
Real work adds value to my business and offers serious tax benefits.
The Untapped Wealth in Family Hiring
Teaching kids about money, work, and business is rare today.
Many young people need more skills to build successful futures.
By hiring your kids, you’re giving them practical experience with entrepreneurship and financial management.
They’ll see how money flows in a business, learn about deadlines, and gain skills beyond a paycheck.
At the same time, this approach lets you control their schedules more flexibly than any outside hire.
And one huge benefit of hiring your kids is that you can start funding their retirement immediately.
Opening a Roth IRA for them at a young age sets up decades of tax-free growth.
You’re building their financial future while reducing your current tax bill.
Why Paying Kids Under 18 Pays Off
Paying kids under 18 for real work has a unique tax advantage.
You don’t need to withhold income or payroll taxes when you pay them – no FICA, FUTA, or SUTA.
This exemption applies to sole proprietorships and partnerships owned solely by the child's parents. S-corporations and C-corporations do not qualify for this payroll tax exemption.
That means each dollar paid is free from federal payroll taxes.
The first $14,600 they earn is tax-free, thanks to the standard deduction.
That means you’re legally transferring money to your children, tax-free, and writing off the amount as a business expense.
You can also claim your children as dependents and potentially benefit from the child tax credit.
This is a smart way to shift income within your family without an added tax burden.
Follow the Steps and Keep It Clean
The key to this strategy is keeping it legitimate.
Your kids need to do real work, not just chores.
If they’re helping with video editing, social media, or product posts, make sure you document their hours and tasks.
For tax purposes, if you operate as a sole proprietorship or partnership where both partners are parents, record their work as 'outside labor,' not payroll, to take advantage of the payroll tax exemption.
If you’re setting up a Roth IRA for your child, consider issuing a W-2 for extra documentation, although it’s not required.
For S-Corp or C-Corp owners, more structure is needed.
To avoid FICA, route payment through a family-owned sole proprietorship and list it as “outside labor.”
The small extra step keeps this tax strategy safe and efficient.
Hiring Older Kids? Keep It Compliant
For adult children, the rules shift slightly.
Paying them as employees means following the standard W-2 requirements.
If you classify them as contractors, issue a 1099-NEC, but know the difference between employees and contractors to avoid potential issues.
By paying them for real business contributions, you’re also helping them manage life expenses on income taxed at a lower rate.
The Lasting Wealth of Family Hiring
Hiring your kids isn’t just a tax deduction.
It’s a powerful way to build their financial and business knowledge.
Your family’s overall tax burden shrinks while your kids earn, learn, and grow.
Here’s the bottom line:
You get a tax deduction on money you’re already spending to support them.
Your kids pay little to no income tax on up to $14,600 annually.
You’re building real financial knowledge and work ethic in the next generation.
And, if managed well, their help could make your business more profitable.
Friends save thousands of dollars using this strategy and strengthen their family relationships.
So, ask yourself:
Would hiring your kids strengthen your business and help you achieve your financial goals?
Explore this strategy and start building a tax-savvy future that benefits your family.
