Can I Pay My Child in Cash? (Why You Shouldn't)

Q: Can I pay my child in cash?

You can pay your child in cash, but it's not recommended. Cash payments are hard to document and prove in an audit. Use checks, bank transfers, or digital payments for a clear paper trail.

Quick Answer

Technically yes, but we strongly advise against it. Cash payments create no automatic paper trail and are difficult to prove in an IRS audit. The IRS may disallow wage deductions or challenge Roth IRA contributions if you can't prove payment occurred. Instead, use bank transfers, checks, or digital payments (Venmo, Zelle, PayPal) which create automatic records. If you must use cash, have your child sign dated receipts and keep detailed logs.

Why Cash Is Problematic

1. No Paper Trail

Cash leaves no automatic record. If the IRS asks "Did you actually pay your child?", your answer is "Trust me." That's not compelling evidence.

2. Harder to Prove in an Audit

In an audit, you need to demonstrate:

Work was performed
Payment was made for that work
The payment matches the work

With cash, item #2 becomes "I handed them money, but I have no proof." Bank transfers, checks, and digital payments all create automatic records.

3. Looks Suspicious

The IRS is naturally skeptical of family employment claims. Cash-only payments raise additional red flags because they're easier to fabricate.

Better Alternatives

Method	Paper Trail	Notes
Bank Transfer	Excellent	Best option. Clear record in both accounts.
Check	Very Good	Keep copies of all checks written.
Venmo/Zelle	Good	Add a note like "Payment for filing work 1/15".
PayPal	Good	Use business payments for best records.
Cash	None	Avoid if possible.

If You Must Use Cash

If cash is your only option, at minimum:

Have your child sign a receipt for each payment
Keep a detailed log of cash disbursements
Consider having a witness
Match cash withdrawals from your account to payment dates

But honestly? Just open a free checking account for your child and transfer money there. It's easier and far more defensible.

What About Their Bank Account?

Opening a bank account for your child is easy:

Most banks offer custodial accounts for minors
You manage it until they're 18
Transfers from your account to theirs create clear records

This also teaches financial responsibility and makes Roth IRA funding easier.

Bottom Line

Don't use cash to pay your kids. It's legal, but it creates unnecessary risk. Bank transfers take 30 seconds and give you an automatic paper trail.

Learn more: How to Document Paying Your Kids: The Complete Checklist

Sources

IRS Recordkeeping: What Records to Keep

Can I pay my child in cash?