Hiring your child, especially if they are under the age of 18, can be a way to help them save for college or even retirement completely tax free—including the withholding taxes in some circumstances!
For instance, if you pay your 17 year old under the personal deduction ($15,750 in 2025 for single filers) they (and perhaps more importantly you) will not pay any tax or withholdings on these wages.
One of the reasons I started Rock Solid Accounting was to help people take advantage of the 800,000 plus pages of guidance the IRS has provided for us to help reduce our taxes. I found out a lot of people are resistant toward using the tax guidance to their advantage, such as hiring their children because earning tax free money seems a little too good to be true—and they are worried about getting audited. But the thing is, it’s only risky if you don’t properly document what you are doing and/or your children aren’t providing a legitimate service to your business for a reasonable amount of compensation.
Don’t let the complexity of this article stop you from acting. The savings are real and will compound over time. For instance, if you can pay your child $15,000 this can significantly lower your overall tax bill for your family. For a married couple earning $200,000, deducting the wages saves about $3,600 in federal income tax, and avoiding employer Social Security and Medicare taxes saves roughly another $1,150. Because the child typically owes little or no federal tax on the income, the net savings to the family are $4,700!
In certain family-business setups—especially if you are a sole proprietor (or a partnership where you are your partner are both parents)—wages paid to a child who is 17 or younger (under 18) may be exempt from Social Security and Medicare (FICA) taxes, and wages paid while the child is under 21 may be exempt from federal unemployment (FUTA). Once your child turns 18, that FICA exemption generally drops off (even though the FUTA break can continue until 21), which can make the same payroll meaningfully more expensive. Even when those payroll exemptions don’t apply, properly documented, reasonable wages for real work can still be deductible and may shift income from the your higher rate to your child’s often-lower rate—but you still need to consider state payroll taxes and child-labor rules alongside the federal tax angle.
Federal tax (IRS): what matters most
Hiring your child can be legitimate and tax-efficient, but only if it’s a legitimate job. In practice that means:
- Your child performs bona fide work that helps your business (or your household, if it’s domestic employment).
- You pay a reasonable wage for the work performed.
- You keep normal employer records (job description, time sheets, pay rate support, payroll reports, proof of payment).
The big IRS levers are (a) your business structure, (b) whether the work is business vs. household/domestic, and (c) the child’s age.
For a child employed by a parent, IRS guidance distinguishes between:
- Parent sole proprietorship (Schedule C) or a partnership where each partner is a parent, versus
- Corporation (including a corporation controlled by the parent) or non-parent partnership, versus
- Domestic work in the parent’s home (household employee context).
Payroll tax headline (typical “family business” case):
- In a parent sole prop / parent-only partnership, wages to a child:
- Under 18: generally exempt from Social Security & Medicare (FICA)
- Under 21: generally exempt from FUTA
- If the child works for a corporation (even if the parent controls it, and this includes S-corps) or a partnership that isn’t parent-only, wages are generally subject to withholding + FICA + FUTA regardless of age.
- For domestic work in the parent’s home, IRS publications provide longer payroll-tax exemptions and special household-employer rules.
Income tax withholding: Pub. 15 explains a child’s wages are generally subject to federal income tax withholding, with exceptions (notably for domestic work in the parent’s home and certain small/irregular “not in a trade or business” situations).
Child’s own tax return / kiddie tax:
- Wages are taxable income to the child (they’re wages/salaries).
- “Kiddie tax” is about unearned income (e.g., interest/dividends), not wages.
Optional planning: If your child has W‑2 wages (“compensation”), they are probably eligible to contribute to an IRA (e.g., Roth), subject to annual limits and other rules.
Federal labor (DOL): what’s allowed for minors
Even if the tax side works, you still must comply with child labor rules based on their age:
- 14–15: limited hours + limited non-hazardous occupations
- 16–17: unlimited hours, but no hazardous occupations
- 18+: no longer subject to federal youth employment rules
- Parent-owned business carve-out: children of any age are generally permitted to work in a business entirely owned by their parents, but with important exceptions (e.g., under 16 not in mining/manufacturing; under 18 not in hazardous occupations).
State considerations (apply on top of federal)
States commonly regulate:
- Work permits / age certificates
- Hour/curfew limits (especially during school weeks)
- Prohibited occupations (often broader than federal)
- State unemployment insurance, workers’ compensation, and state/local income tax withholding
DOL’s Youth Rules guidance is explicit about the federal/state interaction:
- If state law is less restrictive, federal law applies.
- If state law is more restrictive, state law applies.
IRS household employer guidance also flags state payroll overlay (example: you may owe state unemployment tax).
Action plan by age group (federal + state checkpoints)
First: pick the correct “tax bucket”
This drives what you must withhold/pay.
Bucket A — Parent’s sole proprietorship or parent-only partnership
- FICA (SS/Medicare): generally exempt until age 18 (business context)
- FUTA: generally exempt until age 21
- Income tax withholding: generally applies (with exceptions).
Bucket B — Corporation / non-parent partnership / estate
- Generally normal payroll rules: withholding + FICA + FUTA regardless of age.
Bucket C — Domestic work in the parent’s home (household employee)
- Household rules apply, and Pub. 926 shows wages paid to your child under 21 are not counted for certain household employment-tax triggers and aren’t FUTA wages.
Common “do this every time” steps (all ages)
- Define the job (duties, where performed, supervisor, tools, expected output).
- Confirm it’s legal for that age under federal + state child labor rules. Start with Youth Rules and your state labor department.
- Set a defensible wage (what you’d pay a non-family worker for the same work).
- Run payroll properly (W‑2 employee in most cases). Apply the correct tax bucket above.
- Maintain records: time sheets, pay stubs, proof of payment, and year-end forms (W‑2/W‑3; household may involve Schedule H concepts).
- State setup: confirm state withholding, unemployment, and workers’ comp rules (they vary and may not mirror federal exemptions).
Under 14
Federal labor: In general, regular employment is tightly limited, but a child of any age may generally work for a business entirely owned by their parents in non-hazardous roles (with key exceptions such as manufacturing/mining for under‑16 and hazardous occupations for under‑18).
Action plan
- Keep duties clearly non-hazardous and age-appropriate; avoid any hazardous-occupation-adjacent tasks.
- Verify state permit/age certificate rules and hour limits (state may be stricter).
- Use the correct IRS bucket (A/B/C) for payroll handling.
Ages 14–15
Federal labor: 14–15 may work outside school hours in certain non-manufacturing, non-hazardous jobs, with hour limits and conditions.
Action plan
- Build schedules around school-hour restrictions; keep a weekly compliance log.
- Check state law for work permit requirements and tighter hour rules.
- Payroll: W‑2 employee; apply FICA/FUTA rules based on your entity and whether it’s household vs business.
Ages 16–17
Federal labor: unlimited hours, but no hazardous occupations.
Action plan
- Create a “prohibited tasks” list and train the minor + manager on it (hazardous work rules).
- Check state curfew/hour rules (often stricter than federal in practice).
- Payroll: under 18 may qualify for FICA exemption only in Bucket A (sole prop / parent-only partnership).
- Optional planning: if they have W‑2 compensation, evaluate IRA contribution strategy.
Ages 18–20
Federal labor: no longer under federal youth employment rules.
Action plan
- Re-check payroll taxes at the 18th birthday: in Bucket A, FICA generally begins at 18 (business context), while FUTA remains exempt until 21.
- If you’re in Bucket B (corporation/non-parent partnership), continue normal FICA/FUTA.
- Confirm state unemployment and workers’ comp coverage requirements (state-specific).
Ages 21+
Action plan
- In most situations, by 21 the FUTA exemption is gone; treat the child like any other employee for payroll taxes based on your entity type and the work context.
Compliance checklist -- How to stay within the guidelines
Following this checklist will help you stay within the IRS guidance. It all boils down to the legitimacy of the job and the pay--please don't pay your 6 year old to clean your 150 sqft office for $2,000 a month!
- Make the job real
- Write a job description and ensure the tasks are actually performed.
- Keep basic proof (timesheets, work product, schedule). This supports “services actually rendered” and reasonableness.
- Write a job description and ensure the tasks are actually performed.
- Pay a reasonable rate
- Pay what you’d pay someone else for similar work at similar skill/age level, consistent with “reasonable compensation.”
- if you need to pay FICA/FUTA, run it through payroll like any other employee
- Payments for the services of a child under age 18 who works for their parent in a trade or business aren’t subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.
- If you child is working in your business they can avoid FUTA until they are 21
- If they are working around the house (not for your business) they can avoid both FUTA and FICA until age 21.
- Payments for the services of a child under age 18 who works for their parent in a trade or business aren’t subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.
- Don’t “fake” business wages for household chores
- Household employee rules are different, and those wages generally aren’t a Schedule C deduction.
- Watch worker classification
- Pub. 334 notes that whether someone is an employee vs independent contractor depends on the facts, and independent contractor earnings are subject to self-employment tax. Misclassification can create tax issues.
- Don’t forget non-tax rules (child labor)
- The U.S. Department of Labor explains FLSA child labor provisions are designed to keep work safe and not interfere with education, with only limited exemptions.
Key References
- IRS Publication 15 (Circular E), Employer’s Tax Guide — Family Employees rules IRS
- IRS Family employees webpage (high-level summary) IRS
- IRS Publication 334 — “Employees’ Pay” deductibility tests (reasonable + services performed) IRS
- 26 CFR §1.162-7 — reasonable compensation for services actually rendered Legal Information Institute
- IRS Publication 926 — household employment tax/withholding rules IRS+1
- IRS Publication 51 — agricultural employer rules incl. family employment table IRS+1
- IRS Publication 929 — earned vs unearned income definitions (re: kiddie tax relevance) IRS
- U.S. DOL Child Labor overview page DOL
Friendly reminder: The IRS does not accept “I read it on a blog” as documentation. This article is for informational purposes only and isn’t tax, legal, or accounting advice. Your situation matters—please consult a qualified professional before acting on anything here.