If you’re a small business owner with kids, you’ve got an untapped opportunity to elevate both your business and your children’s future. By legally hiring your kids to work for your business, you can reduce your taxable income while instilling valuable money management and responsibility skills in them.
Here’s everything you need to know to make this win-win strategy work for you.
Can You Pay Your Children to Work for Your Business?
Yes, you can! The IRS allows business owners to employ their children, provided the work is legitimate and their wages are reasonable for the tasks they perform.
For example, they could help with tasks like filing paperwork, managing social media, cleaning, or even maintaining business properties.
If your business operates as a sole proprietorship or a family-owned LLC, there’s even more good news. You won’t need to withhold payroll taxes for employees under 18. Plus, their income is tax-free up to $15,000 in 2025, thanks to the standard deduction.
What Are the Tax Benefits of Hiring Your Kids?
Hiring your kids doesn’t just put money in their pockets; it offers multiple financial perks for you as a business owner.
Here’s a breakdown of the benefits:
- Deductible Wages: The payments you make to your kids are considered a business expense, reducing your taxable income.
- Tax-Free Income: Your children can earn up to $15,000 tax-free in 2025 (and likely more in 2026 based on inflation adjustments).
- Payroll Tax Savings: If they’re under 18 and your business is a sole proprietorship or family-owned partnership, you don’t have to pay Social Security, Medicare, or Federal Unemployment (FUTA) taxes on their wages.
- Savings Opportunities: Your child’s earnings can be used to contribute to a Roth IRA, helping them build long-term wealth from a young age.
It’s not just about saving on taxes. This strategy is also a great way to teach your kids the value of earning and managing their money.
How Much Can You Pay Your Kids Without Payroll Taxes?
For children under 18, IRS rules are straightforward. If you’re a sole proprietor or in a family-owned partnership, you can pay your kids up to $15,000 in 2025 without worrying about payroll taxes.
If your child is 18 or older, however, payroll taxes will apply. You can choose to pay them as either a regular employee (via a W-2) or as an independent contractor (via a 1099-NEC). Just make sure you meet IRS classification guidelines to avoid penalties.
What Jobs Can Your Kids Do?
The possibilities are vast as long as the work is legitimate and supports your business operations.
Here are a few examples:
- Office Tasks: Filing, organizing supplies, or managing schedules.
- Marketing Assistance: Managing social media, creating graphics, or helping with email campaigns.
- Property Maintenance: Cleaning rental units, landscaping, or light repairs.
- Inventory Work: Counting, sorting, or restocking items.
Make sure their responsibilities align with their skill level, and remember to document their work. Keep it professional; regular chores like washing the family car won’t qualify as business-related activities.
Are There Age Restrictions When Hiring Your Kids?
No minimum age is set for hiring your kids as long as the work is age-appropriate and safe. However, you’ll still need to comply with federal and state child labor laws to ensure everything is above board. Keep in mind that all tasks should be reasonable, safe, and beneficial to your business.
How to Implement This Strategy
Follow these simple steps to legally and effectively hire your kids for your business:
- Give Them Legitimate Tasks: The work must directly benefit your business.
- Set Reasonable Wages: Pay them the same rate you’d offer an unrelated employee for similar work.
- Document Everything: Keep clear records, including job descriptions, timesheets, and payment records, in case of an IRS audit.
- Use the Right Business Structure: Sole proprietorships and family-owned LLCs offer the most tax benefits. If you operate as an S-corp or C-corp, you might consider paying your kids through a sole proprietorship to bypass payroll taxes.
Looking to involve grandchildren? A similar strategy works, with a few extra steps to ensure everything is tax-effective.
Why Hiring Your Kids Is a Win-Win
When you put your kids on the payroll, everyone wins. It’s a smart tax move that reduces your business expenses while giving your children valuable life skills. Plus, the income they earn can be used to contribute to savings accounts, retirement funds, or even future education expenses.
Beyond the financial benefits, you’ll be teaching your kids about responsibility, work ethic, and the value of a dollar. It’s an investment in their future and a boost for your business.
Start putting this strategy to work today and discover how hiring your kids can benefit your family and your business!
