Hiring your kids: the tax rules that matter
If your child does real work at a fair wage, you deduct the pay and they can earn up to the standard deduction, $16,100 for 2026, free of federal income tax. In a sole proprietorship, wages to a child under 18 also avoid Social Security and Medicare tax. S-Corps don't get that break.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- 2026 free income. Up to the standard deduction, free of federal income tax
- FICA break. Under 18, sole proprietorships and parent-only partnerships
- Must be. Real work at a fair wage
How does the saving work?
You move income from your bracket to theirs. If you're in the 24% bracket and pay your teenager $10,000, you deduct $10,000, saving income tax. Your child owes no federal income tax on it, because it's under the standard deduction.
As a sole proprietor, you also avoid self-employment tax on that $10,000, and you pay no FICA or FUTA on their wages if they're under 18. That's about $1,400 more.
Which businesses qualify?
| Business | Income shift | FICA exemption for child under 18 |
|---|---|---|
| Sole proprietorship | Yes | Yes |
| Partnership owned only by the parents | Yes | Yes |
| Single-member LLC taxed as a sole prop | Yes | Yes |
| S-Corp | Yes | No |
| C-Corp | Yes | No |
An S-Corp can still pay your child, but it withholds and pays regular payroll tax.
What does the IRS expect?
- The work is real and needed by the business
- The pay is what you'd pay someone else for the same job
- The child is old enough to do it. A 7-year-old filing invoices is a hard sell
- You keep a job description and time records
- You pay them through a real payment, preferably into their own account
- You file a W-2, or a 1099-NEC in the narrow cases where that fits
Child labor laws still apply, so check federal and state rules. Typical jobs include cleaning, stocking, social media, data entry or being in your marketing.
Should the money go into a Roth IRA?
It's one of the best uses. A child with earned income can contribute up to that income, or $7,500 for 2026 if lower, to a Roth IRA. Decades of tax-free growth from a teenager's job is hard to beat. Roth contributions need real earned income, so again, keep those records.
What are the common mistakes?
Paying a child for chores at home, paying with no records, or paying far above market rates. Those are the cases that fail on review. The child may also need to file a return. If you're paying for help anyway, this can be a simple and legitimate way to reduce your taxes.
Sources
General information, not tax advice for your situation.
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See our tax planning and CFO serviceHow much can I pay my child tax-free in 2026?
Up to $16,100 before federal income tax applies, if they have no other income and the work is real.
Does my child need to file a tax return?
Maybe not if their income is under the filing threshold, but they may want to file to get withholding refunded.
Can I hire my child if I have an S-Corp?
Yes, but regular payroll taxes apply, so you lose the FICA exemption.
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