Why Hiring Your Kid for Your Business Is a Win-Win and a Tax Break

Bringing your kid into the family business isn’t just about giving them chores. Hiring your child can be one of the smartest financial and parenting moves you can make if you do it correctly.

From tax perks to teaching real-world money skills, there’s a lot to gain for both you and your child. If this is your first time thinking about employing your kid, here’s everything you need to know to get started the right way.

The Perks of Putting Your Kid on Payroll

1. Sweet Tax Savings

The biggest perk is deducting your child’s wages as a business expense. This means you’ll lower your taxable income and possibly keep thousands of dollars!

For example, if your child earns $15,000 or less (the standard deduction for single filers), you can deduct that amount from your business taxes, and your child likely won’t owe any federal income taxes either. Win-win!

2. They Can Start a Roth IRA

When your child starts earning income, they become eligible to contribute to a Roth IRA, which is a major deal to be able to start one so early due to the compounding of interest.

Roth IRAs grow tax-free and can be withdrawn tax-free in retirement, and starting one early can give your child an amazing head start on long-term wealth. Even small contributions can turn into a six-figure nest egg by the time they retire!

3. Potentially Fewer Payroll Taxes

Depending on how your business is set up and your child’s age, they might not be subject to Social Security or Medicare taxes. If your business is a sole proprietorship or partnership between parents and your child is under 18, then it applies. 

That’s even less tax for them AND for you. But double-check with your accountant to make sure these exemptions apply to you.

Rules to Know Before Hiring Your Kid

Before officially adding your child to the payroll, there are some important rules to follow:

1. Understand Your State’s Labor Laws

Child labor laws will vary by state. Some will have lenient rules for family-run businesses, but some, like New York, have strict regulations regarding age, hours, and job types.

Always check your state’s laws before hiring and assigning positions. You don’t want to get into legal trouble!

2. Follow IRS Guidelines

The IRS workforce may have shrunk thanks to DOGE and the Trump administration, but you still shouldn’t mess around with the guidelines of family employment. Your kid must be doing REAL work, not just cleaning their room. And you, as the business owner, should be tracking their hours, responsibilities, and pay.

3. Give Fair Wages and Document Hours

Speaking of pay, it must be “reasonable” for their work. This is separate from an allowance. Overpaying or underpaying could trigger an audit; you definitely don’t want that.

Start a simple system to document their hours, duties, and payments, as you would for any employee.

The Money Move

Hiring your child for your business isn’t just about saving money; it’s an amazing opportunity to invest in their future. That 10-20 years of extra contributions into a Roth IRA can significantly help their retirement!

You’re also giving them the chance to learn responsibility, budgeting, time management, and how taxes work. Plus, you get to reduce your taxable income and possibly stash away for more of your own financial goals. 

Just be sure to follow the rules, track everything correctly, and pay fairly. This could be one of the most rewarding decisions for your family and business!