As working parents and business owners, you’re always looking for the most effective ways to make your money go further. Many people don’t know that you can maximize the benefits your company can offer, while teaching your children important life lessons, by hiring them to work for you. This strategy offers a host of tax benefits for you, your children, and your business, plus it’s compliant with IRS guidelines, too. As well as significant tax advantages, you can teach your children so much that they won’t learn in a classroom.
Benefits For Your Family And Your Business
Skills you can’t teach: Every parent wants to help their children prepare for the future, whether it’s financially or by giving their children valuable skills, including a strong work ethic. Yes, they can learn this in a classroom (to a degree), but real skills that can be used in their future careers are only learned while doing the job.
Reducing Your Tax Bill: The biggest benefit to you in hiring your children is the tax benefit, as when you hire them, their wages become a deductible business expense. Therefore, your taxable income is reduced, and your tax bill with it.
Potential for No Payroll Taxes: Also, if any child is under the age of 18, their wages will not be affected by Social Security and Medicare taxes - but only if your business operates as a sole proprietorship or a partnership between both parents.
Standard Deduction Benefit: As of 2025, children can earn up to $15,750 tax-free under the standard deduction amount. This means that you are legally entitled to shift income from your higher tax bracket to their lower, potentially zero, tax bracket. The result? You save on taxes, your children gain income and experience, and your money stays in the family.
Hiring Your Children: IRS Guidelines
While this all sounds fantastic for your business, you must make sure that as part of your tax strategy you stay IRS compliant to avoid any penalties.
Make it Legitimate - Everything has to be above board and you’ll need to prepare a full job description with responsibilities that are appropriate for their age and abilities. For example, you couldn’t hire your 1-year-old as a cleaner, or your teenager as the CEO.
Pay Them Fairly - Make sure to pay them the same as you would a non-family member. Too high and you’ll draw the attention, and scrutiny, of the IRS. It must be directly comparable.
Document Accurately - Just like any other employee you’ll have to be meticulous with your accounts, making sure you log hours on timesheets, payroll records and proof of payment. This is not a tax avoidance scheme, so it needs to be treated in a legitimate manner - proper documentation will cement that fact.
Understand Payroll Taxes and Withholding Rules - You must make sure you file the required payroll tax forms. If you run your business as a corporation, an estate or a partnership with non-parent partners it’s important to withhold Social Security and Medicare taxes from your child’s paycheck. And don’t forget to file the required payroll tax forms.
Filing Requirements - On that note, you need to issue your child with a W-2 and file it with the proper government agencies. If their wages then exceed the standard tax deduction or they meet other IRS filing requirements, then they’ll need to file a tax return.
A Strategy That Goes Beyond Taxes (And Savings)
So, if you have the work, and it’s all above board then hiring your child to work in your business really is a no-brainer. They’ll learn a strong work ethic, gain responsibility, and tons of experience while also earning their own money. For you, you get to introduce your children to the world of work and make some tax savings as an added bonus.
With all tax strategies, it’s best to consult with a professional. If you’re ready to see how this can work for you, then Book a FREE Tax Advisory Call today, and let our experts guide you and help your money go further.