Tax Benefits When Hiring Your Children

If you have children and own a business, here is a strategy worth your attention: hire them.

Consider one example: A business owner pays her 13-year-old $16,100 in 2026 to work in her Schedule C business. The child owes zero federal income tax because the 2026 standard deduction for a single taxpayer is $16,100. Meanwhile, the $16,100 wage deduction reduces federal and state taxes and puts roughly $6,614 back in the owner’s pocket.

The family keeps the full $22,714—$16,100 for the child plus $6,614 in tax savings for the owner.

Give Your Child Tax-Free Income

You can go a step further. Add a $7,500 deductible traditional IRA contribution to the child’s $16,100 in wages, and the child can earn $23,600 with no federal tax.

Better yet, if wages stay at or below the standard deduction, consider a Roth IRA instead. A deduction is worth nothing to a child already paying zero tax, while Roth savings can grow tax-free and qualified withdrawals can come out tax-free later.

Watch the Section 199A Deduction

There is an important 2026 wrinkle: Section 199A. For business owners who qualify for the qualified business income deduction, wages paid to your child reduce qualified business income and can therefore reduce your Section 199A deduction.

However, higher-income business owners subject to the Section 199A wage limitation may see a different result because the child’s W-2 wages can increase the wage limitation.

Your Business Structure Matters

In a proprietorship or a spouse-only partnership, wages to your under-age-18 child escape Social Security and Medicare tax, and wages to a child under age 21 escape federal unemployment tax.

A corporation gets no such break. On $16,100 in wages, the family could lose roughly $2,500 to payroll taxes. Even so, hiring your child can still produce a tax benefit in a corporation.

The potential tax treatment of your children is one factor worth considering when evaluating your business structure.

How Young Can Your Child Be?

There is no minimum age in the tax law for hiring your child. The important questions are whether the child performs legitimate services and whether the compensation is reasonable for the work performed.

A young child might perform appropriate tasks such as organizing materials, while a teenager might handle website assistance, social media, filing, or administrative work.

Child-labor laws still apply. Make sure the work is appropriate for your child’s age and does not involve prohibited or hazardous activities.

Don’t Forget State Taxes

Federal tax savings are only part of the picture. Your child may have a state income tax filing obligation, and other wage or investment income can affect the calculation.

Before deciding how much to pay, consider the entire family tax situation.

Treat Your Child Like Any Other Employee

This is critical: do the paperwork.

One attorney lost nearly all her wage deductions and faced negligence penalties because she had no W-2s, payroll records, or time sheets.

Treat your child like a real employee. Have a job description, track hours, maintain payroll records, issue the required tax forms, and pay through legitimate W-2 payroll.

If you pay more than minimum wage, document why the rate is reasonable for the work performed. The family relationship does not eliminate the need to prove that the child actually worked and that the wages were reasonable.

Don’t Wait Until Tax Season

Hiring your child can do more than reduce your current tax bill. It can move money from your business to your child in a tax-efficient way, provide earned income for IRA contributions, and teach your child valuable lessons about work, saving, and investing. If you own a business and have children who can legitimately contribute, now is the time to see whether this strategy makes sense for your family.

TrueBlaze can help you run the numbers, determine an appropriate wage, evaluate the tax benefits, and make sure the payroll and documentation are handled correctly. Don’t leave potentially valuable tax savings on the table. Contact TrueBlaze today to discuss hiring your child.