Do You Need Payroll Software to Hire Your Kids?

Q: Do I need an EIN to hire my kids?

The answer depends on whether the child is a business or household employee and which filings apply. Review current IRS EIN and employer guidance; using an EIN can also reduce where an SSN is shared.

Q: What if I hire my kids AND have other employees?

Ask the payroll provider how to add a family employee and supply the verified tax treatment. Do not mark an exemption based only on age or a broad entity label.

Q: Can I switch from payroll software to documentation-only?

Only after confirming that another process will satisfy every withholding, deposit, reporting, and filing duty. Continuous documentation alone is not a substitute for required payroll compliance.

Quick Answer

It depends on the employer, work, wages, withholding, and required filings. Some direct parent sole-proprietor and parents-only partnership arrangements may qualify for family-employment payroll-tax exceptions, but documentation software does not replace payroll obligations. Determine the requirements first; then choose full payroll, professional help, or a documented manual process.

Why There's Confusion

Family employment can change particular payroll-tax rules, but it does not automatically remove withholding, deposit, reporting, recordkeeping, or state-law duties.

The confusion stems from mixing up two different requirements:

Payroll processing = calculating taxes, withholding, depositing, filing
Documentation = proving the work happened and was paid for

The IRS cares about both accurate records and any payroll or information returns the law requires. Software is optional only when a compliant alternative process covers those duties.

The FICA Exemption Changes Everything

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. A parent-owned disregarded single-member LLC and a parents-only partnership may also qualify. The 15.3% figure is the combined FICA rate, not a universal savings promise.

May Qualify When Every Requirement Is Met:

✓ Sole proprietorships
✓ Disregarded single-member LLCs wholly owned by the parent
✓ Partnerships where both partners are the child's parents

FICA Exemption Does NOT Apply To:

✗ S-Corporations
✗ C-Corporations
✗ LLCs taxed as corporations
✗ Partnerships with non-parent partners
✗ Children 18 and older

Even if a FICA exception applies, other withholding, reporting, deposit, unemployment, state, and labor-law obligations may remain. Confirm those duties before deciding not to use payroll software.

What You Actually Need

Common records and duties to evaluate include:

Requirement	Why It Matters	Payroll Software?
Employment agreement	Proves employment relationship exists	Doesn't provide
Work logs (contemporaneous)	Proves work was performed	Doesn't provide
Payment records	Proves payment was made	Provides
W-2 and other filings, when required	Reports wages and taxes under the applicable rules	Provides

Payroll software and documentation software solve different problems. Some duties can be handled manually or by a tax professional, but they do not disappear:

Payment records: Bank transfers create automatic records
Required forms: Can be filed through approved government or professional channels

Full Payroll vs. Documentation-Only

Feature	Full Payroll (Gusto, ADP)	Documentation Tool (employkids)	DIY (Spreadsheet)
Employment agreements
Work logging with timestamps
Payment tracking
Tax withholding/filing		Not provided	Not provided
Direct deposit	Worksheet only	You transfer	You transfer
W-2 generation
Roth IRA documentation
Annual cost	$480-840+	$299-499	Free

When Full Payroll Software Is Especially Useful

Full payroll software is especially useful if:

You have an LLC, S-Corp, or C-Corp employer: Do not assume the direct-parent exception applies
Your child is 18+: The under-18 FICA exception no longer applies
You have other employees: You're already paying for payroll anyway
You want full automation: Direct deposit, automatic tax filings, etc.

If any of these apply, consider Gusto or QuickBooks Payroll. They'll handle the FICA calculations and quarterly filings that you can't avoid.

When a Manual Process May Be Reasonable

After professional review, a manual process may be reasonable when:

The exact parent-employer arrangement qualifies: Not merely because an entity is noncorporate
The child's age and work meet every rule: Including state law
You only employ your kids: No other employees to process
You want to minimize cost and complexity: Documentation-only is simpler

The Cost Difference

Option	Cost/Year	Best For
Gusto	$480+ (+ $6/person/mo)	S-Corps or existing payroll users
QuickBooks Payroll	$600+ (Core plan)	QuickBooks users, S-Corps
ADP Run	$600+ (varies)	Larger businesses
employkids	$299-499	Sole props hiring only their kids
DIY Spreadsheet	Free	DIY enthusiasts willing to risk audit gaps

For a sole proprietor with 2 kids under 18, the math is clear:

Gusto: $480 base + $144 (2 people × $6 × 12 months) = $624/year
employkids: $299/year (Home) or $499/year (Pro for business owners)

And Gusto doesn't generate employment agreements or track work. You'd still need to handle those separately.

What About the W-2?

Whether a W-2 is required depends on the employment context, wages, and withholding. If one is required, options include:

Payroll software: Generates W-2 automatically
employkids: Provides W-2 worksheet data for easy filing
IRS Forms: File W-2 directly at SSA.gov (free but manual)
Tax software: TurboTax, H&R Block, etc. can generate W-2s

Do not leave Social Security and Medicare boxes blank based only on age or entity label. Confirm the employment-tax treatment and use the current Form W-2 instructions.

FAQ

Do I need an EIN to hire my kids?

EIN requirements depend on the employer and filings. Review current IRS EIN and household/business employer guidance. An EIN can also reduce where an SSN is shared.

What if I hire my kids AND have other employees?

If you already use payroll software for other employees, you can add your kids to the same system. Give the provider the verified family-employment treatment rather than selecting an exemption based only on age or a broad entity label.

Can I switch from payroll software to documentation-only?

Only after confirming how every withholding, deposit, reporting, and filing duty will be handled. Continuous documentation alone is not a substitute for required payroll compliance.

Our Recommendation

For a simple arrangement after professional review:

A documentation-focused tool like employkids can organize agreements, work logs, payments, and worksheets. It does not provide payroll processing or guarantee that no other records or filings are required.

For S-Corps, C-Corps, or those with other employees:

Consider Gusto or QuickBooks Payroll. You need FICA handling anyway, and integration with existing payroll may be simpler. Just remember you'll still need separate documentation for work logs and employment agreements.