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

Why Hire Your Kids? The Tax Benefits Explained

Hiring your kids isn't just a clever loophole. It's a legitimate tax strategy backed by decades of IRS guidance. Here's what makes it powerful:

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 your child earns below the standard deduction ($16,100 in 2026), they pay $0 federal income tax on those wages.

2. Business Deduction for Wages Paid

If you're a business owner, wages paid to your children are deductible as a business expense. Pay your child $5,000, deduct $5,000 from your taxable business income. At a 32% bracket, that's $1,600 in tax savings.

3. FICA Exemption (Sole Proprietors)

Under IRC §3121(b)(3)(A), wages paid to a child under 18 by a parent's sole proprietorship are exempt from Social Security and Medicare taxes. That's a 15.3% savings on every dollar paid.

4. Roth IRA Contribution Opportunity

Your child's earned income qualifies them to contribute to a Roth IRA. In 2026, they can contribute up to $7,500 or their total earnings, whichever is less. Starting at age 10, contributing $5,000/year until 18, then letting it grow at 7% = over $1.3 million tax-free by age 65. 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 fair market rate for the work performed. Ask yourself: "Would I pay a non-family member the same rate for this work?" If a 10-year-old is doing basic filing, $10-12/hour is reasonable. $50/hour is not.

3. Records Must Be Contemporaneous

Documentation should be created when the work is performed, not reconstructed later. A spreadsheet filled in at year-end is not contemporaneous, and it's not defensible in an audit.

Age Requirements: How Young Is Too Young?

There is no federal minimum age for employing your child. The IRS has accepted children as young as 7 as legitimate employees when the work is real 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:

The key principle: if you'd pay someone else to do it, you can pay your child to do it, as long as they can actually perform the work. For a more comprehensive list with 100+ ideas, see ourTask Ideas by Age resource.

How Much to Pay: Reasonable Compensation Guidelines

"Reasonable" doesn't mean minimum wage. It means what you'd pay a non-family member for similar work. Here are our guidelines by age:

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

Critical: Records must be contemporaneous, created when the work happens, not reconstructed later. Server-timestamped records are far more defensible than editable spreadsheets.

This is exactly what employkids handles. We generate employment agreements, track work with timestamps, and create your complete tax 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. Issue year-end documents: W-2, work summary, payment reconciliation

Funding Their Roth IRA: The Wealth-Building Angle

Once your child has earned income, they can contribute to a Roth IRA. Here's why this matters:

• No minimum age: A 7-year-old with earned income can have a Roth IRA
• 2026 limit: $7,500 or their total earnings, whichever is less
• Tax-free growth: Contributions grow tax-free, withdrawals in retirement are tax-free
• The math: Starting at 10, contributing $5,000/year until 18, growing at 7% = $1.3M+ by 65

Learn more in our guide: Roth IRA for Kids: How to Make Your Child a Millionaire

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. Not issuing a W-2: Required even for family employment
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?

Yes. The IRS explicitly allows parents to employ their children. The key requirements are that the work must be real, the pay must be reasonable, and you must maintain proper documentation.

What is the youngest age I can hire my child?

There is no federal minimum age. The IRS has accepted children as young as 7 as legitimate employees when the work is real and age-appropriate.

How much can I pay my child tax-free?

In 2026, children can earn up to $16,100 (the standard deduction) without owing federal income tax. Sole proprietors also save 15.3% in FICA taxes on wages to children under 18.

Do I need to pay my child through payroll?

Not necessarily. You need proper documentation, but you don't need full payroll software. What matters is tracking work performed, maintaining employment agreements, and issuing a W-2 at year end.

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 929: Tax Rules for Children and Dependents
• 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