Hiring Your Child in Your Business: Common Tax Questions for 2026
Hiring your child can be a legitimate tax strategy for a family business—but simply putting your child on payroll does not automatically create a tax deduction.
Your child must actually work for the business. The pay must be reasonable for the work performed. And the arrangement should be handled and documented like a real job.
When done correctly, paying your child for legitimate work may create a business deduction while moving income to a child who may owe little or no federal income tax.
But the rules depend on your business structure, your child’s age, the type of work performed, how the child works, and how much you pay.
Here are the most common questions.
1. Can I hire my child and deduct what I pay them?
Yes, if your child actually works for your business.
Your business can generally deduct reasonable compensation paid to your child for legitimate business services.
That means:
Your child actually performs the work.
The work provides a real benefit to your business.
The amount you pay is reasonable for the work performed.
The payment is compensation for work—not an allowance or gift labeled as wages.
Being related to your employee does not automatically prevent a business deduction.
The simple rule is:
Real work + reasonable pay = potentially deductible business wages.
2. How much can my child earn in 2026 without paying federal income tax?
For 2026, the standard deduction for a single taxpayer is $16,100. A dependent child’s standard deduction has special rules, but it can reach $16,100 when the child has enough earned income.
For example, if your dependent child earns $16,100 entirely from wages and has no other income or circumstances affecting the calculation, the standard deduction may reduce the child’s federal taxable income to $0.
But this is important:
$16,100 is not an automatic amount you can pay your child and deduct.
The child’s standard deduction helps determine the child’s taxable income. It does not determine how much the parent’s business can deduct.
3. How can hiring my child potentially save taxes?
There is no special federal tax credit or guaranteed tax savings simply because you hire your child.
The potential benefit comes from several tax rules working together.
Your business may deduct reasonable wages paid to your child. Depending on your situation, that deduction may reduce your federal income tax, state income tax, and potentially self-employment tax.
The wages become your child’s income. If the child’s standard deduction offsets those wages, the child may owe little or no federal income tax.
The actual savings depend on your income, tax bracket, business structure, state, payroll taxes, other deductions, and overall tax situation.
4. Should I pay my child on a W-2 or 1099?
It depends on how your child actually works for your business.
If you decide what work your child does, set the schedule, provide instructions, and supervise how the work is done, your child will generally be considered an employee. In that case, you generally use a W-2.
This can be particularly beneficial for a parent’s sole proprietorship. If the child is under 18, the wages are generally exempt from Social Security and Medicare taxes. If the child is under 21, the wages are generally exempt from federal unemployment tax (FUTA).
IRS — Family Employees:https:
A 1099 is different. Your child would generally need to work independently and control how the work is performed rather than work under your day-to-day direction. You cannot simply choose a 1099 because it is easier or because you want to avoid payroll.
A 1099-NEC also does not necessarily mean lower taxes. If your child truly works as an independent contractor, the child’s net earnings may be subject to self-employment tax.
Your business structure matters too. The special parent-child payroll-tax exemptions generally do not apply when an S corporation or C corporation employs the child. Special rules can apply to a partnership where each partner is a parent and to a disregarded single-member LLC.
Also consider the cost of W-2 payroll. Payroll processing, filings, W-2 preparation, and state requirements can create additional expenses. Those costs should be compared with the potential tax savings.
IRS — Independent Contractor or Employee?:
5. What kind of work can my child do?
Real work that is appropriate for your child’s age and abilities.
Depending on your business, examples might include:
Filing or scanning documents
Organizing business supplies
Helping with inventory
Packaging products
Cleaning business areas
Basic administrative work
Appropriate website or social-media tasks
A simple question can help:
If my child weren’t doing this work, would someone else still need to do it?
If the answer is yes, you are much closer to demonstrating a legitimate business purpose.
Creating artificial duties simply to produce a tax deduction is not a sound tax strategy.
6. How much can I pay my child?
Pay a reasonable amount for the work actually performed.
There is no rule saying:
“The standard deduction is $16,100, so I can pay my child $16,100.”
Instead, consider:
What work your child performs
How many hours your child actually works
Your child’s age, skills, and experience
What similar work normally pays
What you would reasonably pay someone else to perform the same job
Then keep records supporting the pay rate.
The tax result should follow the work—not the other way around.
7. How young can my child be?
There is no simple federal tax rule establishing one minimum age for a child to receive legitimate compensation for actual business services.
But tax law is not the only law that matters.
Federal and state child-labor laws determine what work children can legally perform.
Under federal rules, children of any age generally may work for a business entirely owned by their parents, but important restrictions remain. For example, children under 16 generally cannot work in mining or manufacturing under the parental exemption, and children under 18 cannot work in occupations classified as hazardous.
State law may be stricter.
The better question is not simply:
“How young can my child be?”
It is:
“Is this particular job legal and appropriate for a child of this age?”
U.S. Department of Labor — Child Labor Fact Sheet #43:
8. Can my child put the wages into a Roth IRA?
Yes, qualifying earned compensation can make your child eligible to contribute to a Roth IRA.
For 2026, the combined contribution limit for traditional and Roth IRAs is $7,500.
However, your child generally cannot contribute more than the child’s eligible compensation for the year.
For example, if your child has only $4,000 of eligible compensation, the $7,500 annual limit does not mean the child can contribute $7,500.
A Roth IRA can be particularly attractive for a young person who currently owes little or no federal income tax. Roth contributions are not deductible, but qualified distributions can eventually be tax-free.
IRS — IRA Contribution Limits:
9. Does the kiddie tax apply to my child’s wages?
Generally, no.
The kiddie tax primarily applies to certain unearned income, such as interest, dividends, capital gains, and other investment income.
Wages your child earns from actually working are earned income.
If your child also has investment or other unearned income, however, those amounts may need to be analyzed separately.
IRS — Topic No. 553, Kiddie Tax: https://www.irs.gov/taxtopics/tc553
10. What records should I keep?
Treat your child like a real worker—because that is what supports the tax treatment.
Keep records such as:
A job description
Timesheets showing actual hours worked
Records of what work was performed
The wage rate and support for how you determined it
Payroll records, when applicable
W-2s and required payroll filings, when applicable
Checks, direct deposits, or other proof of actual payment
Avoid simply creating a year-end journal entry saying that you “paid” your child.
Your records should make three things clear:
What did your child do? How much did your child work? Why was the pay reasonable?
Employment-tax records generally should be kept for at least four years.
IRS — Recordkeeping:
11. What is the biggest mistake parents make?
Starting with the tax deduction instead of starting with the work.
Don’t begin with:
“The standard deduction is $16,100, so I’ll pay my child $16,100.”
Begin with:
“My business needs this work. My child can legitimately perform it. This is a reasonable rate, and these are the actual hours worked.”
Then determine the tax consequences.
Bottom Line
Hiring your child can be a legitimate tax-planning strategy when your child actually works for your business and receives reasonable compensation.
The business may receive a deduction for the compensation. The child’s standard deduction may result in little or no federal taxable income. And depending on the child’s age and your business structure, there may also be valuable Social Security, Medicare, and FUTA tax benefits.
But the benefits are not automatic.
The arrangement should start with real work and reasonable compensation, followed by the correct worker classification, payroll treatment, and good records.
Before hiring your child, consider not only the potential tax savings but also the cost of payroll and applicable federal and state payroll and child-labor requirements.
General information, not tax advice.
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