What records do I need to hire my child?

The Four Essential Documents

The IRS doesn't specify exactly which forms to use, but they do require proof that:

• A bona fide employment relationship exists
• Real work was performed
• Fair payment was made for that work

Here's what you need to prove each element:

1. Employment Agreement

A written agreement establishes that this is a real employer-employee relationship, not just an allowance with extra steps. Your employment agreement should include:

• Child's name and your name (as employer)
• Job title and description of duties
• Hourly rate or salary
• Expected hours per week
• Start date
• Both parties' signatures

This doesn't need to be a complex legal document. One page is sufficient. The point is to show intentionality. You're treating this like real employment because it is.

2. Work Logs (Contemporaneous)

This is where most families fail. The IRS requires contemporaneous records: documentation created at the time work is performed, not reconstructed at year end.

For each work session, record:

• Date
• Start and end time
• Tasks performed (specific, not vague)
• Total hours

3. Payment Records

You need to prove you actually paid your child for the work. Acceptable payment records include:

• Bank transfers (best: shows in both accounts)
• Cancelled checks or check images
• Venmo/Zelle/PayPal transaction records
• Cash receipts signed by your child (least ideal)

Avoid cash payments whenever possible. They leave no automatic paper trail and are harder to prove. See: Can I Pay My Child in Cash?

4. W-2 at Year End

At the end of each year your child works, you must issue a W-2 reporting their wages. This is true even if:

• They earned below the filing threshold
• No taxes were withheld
• They don't owe any tax

The W-2 is what connects your child's Roth IRA contribution to earned income. Without it, the IRS may question the legitimacy of the contribution.

Additional Records That Help

While not strictly required, these strengthen your documentation:

• Job description: Detailed list of duties for each job role
• Photos of work: Evidence that work was actually performed
• Rate research: Evidence that pay rates are reasonable for the area
• Pay schedule: Regular, consistent payments (not random amounts)

What You DON'T Need

Some families think they need more than they do:

• Full payroll software: Not required for most families hiring kids
• EIN: Sole proprietors paying children under 18 don't need one just for this
• Quarterly tax filings: Often not required if FICA exempt
• Lawyer-drafted contracts: A simple agreement is sufficient

Bottom Line

Good documentation protects you in an audit and legitimizes your child's earned income for Roth IRA contributions. The key is consistency: create records as work happens, not after the fact.

Need help staying organized? employkids generates all these documents automatically: employment agreements, timestamped work logs, payment records, and W-2 worksheets for year end.

Sources

• IRS Publication 929: Tax Rules for Children and Dependents
• IRS Family Employees: Rules for hiring family members
• IRS Recordkeeping: What records to keep