How To Hire Your Child - Save on Taxes 

How to Legally Pay Your Child and Cut Your Tax Bill

As a business owner, one of the most overlooked yet powerful tax strategies is hiring your own children to work in your business. Not only does this create a learning opportunity and instill work ethic, but it can also deliver substantial tax savings for your family.

Here’s how it works and why it’s 100% legal and IRS-approved when done correctly.

1. Pay Your Child and Deduct the Wages

When you pay your child a reasonable wage for real work performed, you can deduct those wages as a business expense. This reduces your taxable income and your overall tax bill.

Let’s say you pay your child $6,350. That’s $6,350 you don’t pay taxes on anymore. Meanwhile, your child owes zero federal income tax because of the standard deduction for single filers. It’s a win-win for your household and the IRS is the only party missing out.

2. Supercharge the Strategy with a Traditional IRA

Your child can contribute up to $6,500 (2025 limit) to a traditional IRA, depending on their earned income. If they earn $11,850 and contribute $5,500 to an IRA, they could potentially avoid taxes on the entire amount.

You're saving on business taxes, and your child is building tax-deferred retirement savings early in life. It’s a smart generational wealth move.

3. Bigger Pay, Still Minimal Taxes

Even if you pay your child more—up to around $21,000—they'll likely still pay very little in taxes, thanks to the combination of:

• The standard deduction,

• A traditional IRA contribution,

• And the favorable 10% tax bracket.

This gives you room to pay your child a meaningful wage while enjoying significant tax benefits on your end.

Bonus Benefit: No Payroll Taxes (for Some Parents)

If you operate your business as a sole proprietorship (Schedule C) or a spousal partnership, and your child is under age 18, neither of you pays Social Security or Medicare taxes on their wages.

This payroll tax exemption does not apply to corporations, but even corporate owners can benefit from paying their kids—it just takes slightly different planning.

IRS-Approved: Kids as Young as 7 Can Work

The IRS allows parents to employ their children as early as age 7, as long as the work is appropriate, the pay is reasonable, and the employment is well-documented. That means:

• Keeping time sheets,

• Writing job descriptions,

• Paying on a W-2,

• And maintaining proper payroll records.

The Bottom Line

Hiring your child to work in your business is more than a financial strategy—it’s a teaching opportunity and a wealth-building tool. Done correctly, it’s a legal, audit-proof method to shift income to a lower tax bracket, reduce your business’s taxable income, and build financial habits in your child.

If this sounds like a strategy you'd like to explore, I can help you set it up properly and ensure it's IRS-compliant every step of the way.

Let’s put this plan to work for your family and your business.