Hiring your children, and what it's really worth
Paying your child for real work moves income from your tax rate to theirs — often zero. How much it saves depends on something the usual advice leaves out: how your business is set up. In an S corporation, it's worth well under half as much.
How it works
Your business pays your child a wage for work they actually do, and deducts it. That wage would otherwise have been profit taxed at your rate. In your child's hands it's taxed at theirs — and with a standard deduction of up to $16,100 in 2026, a child with no other income owes no federal income tax on wages up to that amount. The "kiddie tax" doesn't apply: it's for investment income, not pay.
The payroll tax depends on your business
| Your business | Child under 18 | Child 18 to 20 |
|---|---|---|
| Sole proprietorship, or a partnership owned only by the child's parents | No Social Security, Medicare or federal unemployment tax | Social Security and Medicare; no federal unemployment tax |
| S corporation or C corporation — or a partnership with other partners | Social Security, Medicare and unemployment tax, like any employee | The same |
This is the part the online version skips. Most advice about hiring your kids assumes a sole proprietorship. Once your business is a corporation, the wage carries 15.3% of payroll tax — half from the business, half from your child's pay — and that takes a large bite out of the saving.
The arithmetic
Harbor & Pine, the fictional S corporation in our sample report, would pay the owner's teenager $8,000 for real work. The corporation deducts the $8,000 and its $612 half of the payroll tax — $2,584 less tax at the owner's 30% rate. The family pays $1,224 of payroll tax, both halves. The child owes no income tax. Net: about $1,360 a year. The same wage from a sole proprietorship to a child under 18 would save about $3,360, because there'd be no payroll tax and the owner's self-employment tax would fall too.
What makes it hold up
- Real work the business needs — filing, cleaning the office, social media, product photos, answering email.
- Suited to their age. A nine-year-old can do some tasks; running payroll isn't one of them.
- A fair wage — what you'd pay someone else for the same work, not a number chosen to fill a deduction.
- Timesheets recording the dates, hours and tasks, kept as the work happens.
- Paid through payroll, with a W-2, into an account in the child's name.
Your child's side
The wage is your child's money. A common use for it: a Roth IRA. A child with earned income can contribute up to what they earned, to a 2026 limit of $7,500, and decades of tax-free growth follow. Wages above the standard deduction are taxed at your child's rate, usually 10%.
When it doesn't fit
- There's no real work for your child to do.
- The wage is well above the going rate for the work.
- Your business is an S corporation and the wage is small — the payroll tax and the cost of running payroll can leave little.
- You'd rather not run payroll for them — it's required for a wage in any business.
Whether your child's work and wage hold up is a question for your CPA or tax attorney.
Sources
- IRS Publication 15 — family employees: when a child's wages are exempt from Social Security, Medicare and unemployment tax
- Rev. Proc. 2025-32 — the 2026 standard deduction, including a dependent's
- IRS — the 2026 IRA limit of $7,500
- IRC §162(a) — reasonable wages for services actually performed
- IRC §1(g) — the kiddie tax, on unearned income
General information, not advice for your situation. Whether a strategy fits depends on your facts — talk to your CPA or tax attorney about whether you qualify before you put it in place. Your accountant remains responsible for your return.
Know where yours stands, all year.
OpenYear reads your books, shows which strategies fit your business and why, and keeps the records each one needs — ready for your accountant. It's built for owner-operated S corporations.