Hiring your children: shift income to a 0% bracket — and start their Roth
The short answer
Pay your child a legitimate, market-rate wage for real work in your business and the money moves from your top tax bracket to their 0% bracket — wages up to the standard deduction ($16,100 in 2026) typically owe no federal income tax. If your business is a sole proprietorship or spousal partnership, wages to your under-18 child are also exempt from Social Security and Medicare. Earned income makes the child eligible to fund a Roth IRA — decades of tax-free compounding.
Who this works for — and who it doesn't
Good fit
- Sole proprietors and parent-only partnerships with kids under 18
- Businesses with genuine age-appropriate work: filing, photography, social content, cleaning, modeling for ads, admin
- Parents willing to run this like real employment — because it must be
Not a fit
- S-corps and C-corps paying children directly — no payroll tax exemption (see the family management company route)
- "Wages" for chores, or pay far above market for the task
- Anyone unwilling to keep timesheets and issue a W-2
How it works
- Define a real job. Written description, duties a child that age can genuinely perform, and a wage you'd pay a stranger for the same work.
- Run it like payroll. Timesheets, regular pay into an account in the child's name, W-2 at year-end.
- The business deducts the wages; the child's standard deduction typically zeroes out the federal income tax.
- Fund the Roth. Earned income unlocks Roth IRA contributions up to the annual limit — the single longest compounding runway the tax code offers.
A worked example
Priya runs a sole-proprietor marketing studio. Her kids, 14 and 16, do content tagging, set assistance, and social clips — documented at $22/hour, about 7 hours a week each.
Priya's family payroll, one year
Illustrative only — wages must match the actual work performed, and state rules (including California child-labor and withholding requirements) apply.
Common mistakes that draw IRS attention
- Paying a 9-year-old $15,000 for "office management"
- No timesheets, no W-2, wages paid into the parent's own account
- Lump-sum December "payroll" invented at tax time
- Running it through your S-corp and skipping payroll taxes anyway
Frequently asked questions
How much can I pay my child tax-free?
Wages up to the standard deduction ($16,100 for 2026) generally result in zero federal income tax for the child, provided the work is real and the wage is reasonable for the tasks.
Do I owe payroll taxes on my child's wages?
If your business is a sole proprietorship or a partnership owned only by the child's parents, wages to your under-18 child are exempt from Social Security and Medicare, and exempt from FUTA under 21. Wages paid by a corporation, including an S-corp, do not get this exemption.
My business is an S-corp — does this still work?
Not directly; corporate wages to your child are subject to payroll taxes. The fix with real legal footing is a family management company — a parent-owned entity that provides genuine services to the S-corp and employs the kids. We cover it in detail in our family management company guide.
What records do I need?
A written job description, age-appropriate duties, timesheets, a market-rate wage, payment into the child's own account, and a W-2. Treat them like any employee — because they are one.
Want family payroll set up so it holds up?
We handle the job descriptions, payroll filings, W-2s, and the Roth setup — and we'll tell you honestly what wage the work supports.
Book a free consultation