Is hiring your kids legal?
Quick Answer
Yes, hiring your kids is completely legal and explicitly allowed by the IRS. Parents can employ their children in a family business or for household work. The three key requirements are: (1) the work must be real, (2) the pay must be reasonable for the work performed, and (3) you must maintain proper documentation. Millions of families use this strategy to shift income to lower tax brackets and fund their children's Roth IRAs.
Why It's Legal
Hiring your kids isn't a loophole or gray area. It's explicitly addressed in IRS guidance:
- IRS Family Help: Official IRS page on employing family members, including children
- IRS Publication 929: Tax rules for children and dependents, covering earned income
- IRC §3121(b)(3)(A): Federal law exempting children under 18 from FICA when employed by parents
What Makes It Legal
The IRS accepts child employment when these conditions are met:
1. The Work Must Be Real
Your child must perform actual work that benefits you or your business. You can't pay them for doing nothing or for tasks that don't actually happen.
2. The Pay Must Be Reasonable
Compensation must match what you'd pay a non-family member for similar work. A 10-year-old doing filing might earn $10-12/hour. Paying them $50/hour won't hold up.
3. Documentation Must Be Proper
You need contemporaneous records—documentation created when work happens, not reconstructed at year-end. This includes:
- Employment agreement
- Work logs
- Payment records
- W-2 at year end
What's NOT Legal
The IRS will challenge family employment that:
- Has no real work: Paying for work that wasn't actually performed
- Has unreasonable pay: Rates far above market for the work done
- Lacks documentation: No proof the work happened or was paid for
- Is clearly a sham: Exists only on paper to avoid taxes
Why Some People Think It's Not Legal
Confusion often comes from:
- Child labor laws: These apply to non-family employment, with exemptions for family businesses
- Abuse concerns: The IRS does scrutinize to prevent abuse, which is why documentation matters
- Skepticism: "It sounds too good to be true" isn't a legal argument
The strategy is used by thousands of families every year. It's legal when done correctly.
Bottom Line
Hiring your kids is legal if:
- They do real, age-appropriate work
- You pay a reasonable rate
- You document everything properly
Learn more: How to Hire Your Kids: The Complete Guide
Sources
- IRS Family Help: Employing Family Members
- IRS Publication 929: Tax Rules for Children and Dependents
- DOL Fact Sheet #43: Child Labor Provisions
Related Questions
Learn More
Ready to get started?
employkids handles the documentation so you can focus on paying your kids for real work.
Get Started