How to Hire Your Kids: The Complete Guide (2026)

Why Hire Your Kids? The Tax Benefits Explained

Paying a child for genuine work can have tax and savings benefits, but it is real employment, not a shortcut. The following are possible outcomes to review for your specific facts:

1. Income Shifting to a Lower Tax Bracket

When you pay your child for work, that money moves from your tax bracket to theirs. If you're in the 32% bracket and wages are the child's only income, their applicable dependent standard deduction may offset federal taxable income up to the $16,100 maximum in 2026. Other income and filing circumstances can change the result.

2. Business Deduction for Wages Paid

Reasonable compensation for genuine services may be deductible when it is an ordinary and necessary business expense. A $5,000 deduction at a 32% marginal rate would reduce federal income tax by $1,600 in a simplified example, before considering the complete return.

3. Potential Family-Employment FICA Exception

Under IRC §3121(b)(3)(A), wages paid to a child under 18 by a parent sole proprietor may qualify for the Social Security and Medicare exception. The regulations extend the exception to a disregarded entity wholly owned by the parent; a parents-only partnership may also qualify. Corporations and LLCs taxed as corporations generally do not. The 15.3% figure is the combined FICA rate, not a guaranteed savings amount.

4. Roth IRA Contribution Opportunity

Legitimate taxable compensation may support a Roth IRA contribution. In 2026, the preliminary ceiling is the lesser of $7,500 or eligible compensation, subject to the complete IRA rules. Starting at age 10, contributing $5,000/year until 18 and assuming a steady 7% annual return could grow to over $1.3 million by age 65. Investment returns are not guaranteed, and Roth earnings are federally tax-free only on qualified distributions. Try our Roth IRA Calculator to see how much your child could accumulate.

IRS Requirements: What Makes It Legal

The IRS doesn't prohibit hiring your kids, but they do require you to follow the rules. Here's what matters:

1. The Work Must Be Real

Your child must perform actual, legitimate work that benefits you or your business. You can't pay them for doing nothing or for normal family responsibilities that wouldn't warrant payment.

2. Pay Must Be Reasonable

Compensation must be reasonable for the services actually performed. Document the applicable wage floor and comparable local pay for the same task, skill, responsibility, and conditions. A family relationship or the child's age does not, by itself, establish a reasonable rate.

3. Keep Timely, Supportable Records

Documentation created at or near the work date is generally more credible than a later reconstruction. Keep the records required for your employment and filing context, and preserve evidence of actual payment.

Age Requirements: How Young Is Too Young?

Federal law includes a parental-employment exception for certain nonhazardous work, but prohibited occupations, industry-specific restrictions, and state child-labor rules still apply. The work must be genuine and age-appropriate.

What matters isn't a specific age. It's whether:

• The child can actually perform the work
• The work is appropriate for their developmental stage
• You have documentation proving the work was done

State labor laws may impose additional restrictions for certain types of work, especially in business settings. Always check your state's requirements.

What Jobs Can Kids Do? 50+ Ideas by Age

Here are age-appropriate tasks organized by what children can realistically do at each stage:

A useful first screen is whether an unrelated worker would be paid for the same service, but that is not enough by itself. The task must also be lawful for the child's age and location, safely performed, and permitted under any applicable federal, state, local, and industry-specific rules. For a broader idea list, see ourTask Ideas by Age resource.

How Much to Pay: Reasonable Compensation Guidelines

Start with the highest applicable federal, state, or local wage floor, then research what an unrelated worker receives for comparable services in the same market. The IRS does not publish an age-based wage schedule, and age alone cannot establish a lawful or reasonable rate.

These are conservative defaults. Adjust based on your local cost of living, the complexity of work, and your child's experience. Document why you chose your rate.

Business Entity Matters: Rules by Structure

The tax benefits you get depend on your business structure:

Key insight: Even without the FICA exemption, hiring your kids through an S-Corp still provides the wage deduction and creates earned income for their Roth IRA.

The Documentation Requirement

This is where most families fail, and where audits get ugly. The IRS wants to see:

• Employment agreement: Written terms of employment
• Job description: What tasks the child performs
• Work logs: When they worked, what they did, how long
• Payment records: Proof of payment (checks, transfers, not cash)
• W-2: Issued at year end

Recordkeeping note: Records created at or near the work date are generally more credible than later reconstructions. Server timestamps can strengthen an audit trail, but required records vary.

This is exactly what employkids handles. employkids generates agreements, tracks work with timestamps, and organizes a year-end record packet.

Step-by-Step: How to Set This Up

1. Determine eligibility: Is your child old enough to do real, age-appropriate work?
2. Define job duties: What specific tasks will they perform?
3. Set reasonable compensation: Research what you'd pay someone else
4. Create an employment agreement: Document the terms in writing
5. Set up work tracking: How will you log work as it happens?
6. Establish payment method: Use checks or bank transfers, not cash
7. Maintain ongoing records: Log work when it's performed
8. Complete required payroll/tax filings: Determine whether W-2 or other forms apply

Funding Their Roth IRA: The Wealth-Building Angle

Eligible compensation may support a Roth IRA contribution, subject to the applicable IRA rules:

• Age: Age alone does not bar a contribution; eligible compensation is required
• 2026 limit: Generally the lesser of $7,500 or eligible compensation
• Tax treatment: Earnings on qualified distributions can be federally tax-free
• Projection: Starting at 10 and contributing $5,000/year until 18 could reach $1.3M+ by 65 at a steady 7%; returns are not guaranteed

Learn more in our guide: Roth IRA for Kids: How Early Contributions Can Grow to $1M+

Common Mistakes to Avoid

1. Paying unreasonable wages: $50/hour for a 10-year-old won't hold up
2. No documentation: "We'll figure it out at tax time" is a recipe for disaster
3. Work not age-appropriate: A 5-year-old can't do data entry
4. Paying in cash with no records: Creates audit risk and proof problems
5. Ignoring payroll and filing rules: W-2, withholding, deposit, and filing duties depend on the arrangement
6. Reconstructing records later: Contemporaneous means when work happens
7. Paying for normal family duties: Making their bed doesn't count unless documented properly

Frequently Asked Questions

Is it legal to hire your own kids?

Federal rules recognize family employment, but the tax and labor result depends on the work, age, relationship, employer structure, and state law. The work must be genuine, pay reasonable, and records accurate.

What is the youngest age I can hire my child?

Federal law has a parental-employment exception for certain nonhazardous work, but prohibited occupations and state child-labor rules still apply. Confirm the specific work and location before employing a minor.

How much can I pay my child tax-free?

In 2026, a dependent's standard deduction is generally earned income plus $450, subject to a $1,350 minimum and $16,100 maximum. Other income and state or payroll taxes can change the result.

Do I need to pay my child through payroll?

Payroll, withholding, deposit, and filing duties depend on the employer and wages. employkids is a recordkeeping and worksheet tool, not payroll software; use current IRS guidance or a payroll professional.

Can I hire my child if I have an S-Corp?

Yes, but the FICA exemption doesn't apply to S-Corps. You can still deduct the wages as a business expense, and your child can still fund a Roth IRA with the earned income.

Sources

• IRS Publication 501: Dependents, Standard Deduction, and Filing Information (filing thresholds for a child with earned income)
• IRS Publication 334: Tax Guide for Small Business
• IRS Publication 590-A: Contributions to Individual Retirement Arrangements
• IRC §3121(b)(3)(A): FICA Exemption for Family Employment
• IRS Family Help: Employing Family Members