Hire Your Kids: Family Payroll That Holds Up With the IRS

Paying your kids from the business is not a loophole you invent on TikTok.

It's a job. With a wage. With work that a stranger could recognize as work.

Do it right and you deduct reasonable wages in the company, your child reports earned income, and some of that pay can sit under their standard deduction. Do it wrong and you have a personal allowance wearing a W-2 costume. The IRS has seen that movie.

This is one of the tools the tax code already gives business owners. Regular families are allowed to use it. You just don't get to skip the "real work" part.

What actually works

The company (or your sole prop) employs your child to do age-appropriate business tasks and pays a reasonable wage for that work.

Filing, scanning receipts, cleaning the rental between guests, mowing the investment property, social clips, packing product, data entry. Not "existing in the household."

Example: A photographer's 16-year-old edits 6 hours a week at $18/hour, the going rate for that skill in that city. That's about $5,600 a year if they stay consistent. The business deducts the wages (and payroll costs that apply). The child has earned income. Compare that to "I sent my 8-year-old $15,000 because Mark Kohler's book is on my shelf." One of those is a job. The other is a story.

Not knowing your numbers is like driving without GPS. Family payroll without timesheets is the same ride.

Sole prop vs S-corp (this changes the tax)

Factor	Parent's sole prop (or certain partnerships of parents)	S-corp / C-corp
Wage deduction	Yes, if real and reasonable	Yes, if real and reasonable
Social Security / Medicare on the child's wages	Often not due for a child under 18 working for a parent in an unincorporated business	Generally yes. A corporation is the employer. The "parent's business" exception usually does not apply
Unemployment tax	Often exempt for a child under 21 in that unincorporated setup	Usually applies under normal corporate rules
What people miss	They elect S-corp, then copy sole-prop TikToks	They skip payroll entirely and Venmo

That table is why entity choice matters before you "hire the kids to save FICA." If you're still picking a structure, start with S-corp vs LLC. If you already have an S-corp, family pay is still a deduction. It is not automatically FICA-free.

Wages are earned income. The "kiddie tax" is aimed more at unearned income (investments). Don't confuse a paycheck with parking stock in a child's name and calling it a strategy.

Rules that keep it from looking fake

Real duties. Write them down. A 7-year-old is not your CFO. A 14-year-old can empty trash at the shop, label boxes, or help reset an Airbnb with supervision.

Reasonable pay. What you'd pay a neighborhood kid or a junior freelancer for the same hours and skill. $80/hour for "brand ambassador" at age 9 will not survive a serious look.

Time records. Dates, hours, what they did. Same energy as mileage logs and bookkeeping. If it isn't on paper, it didn't happen.

Pay like payroll. Bank or payroll provider, not cash from the cookie jar labeled "tax hack." For an S-corp, run it through payroll. For a sole prop, still document it like an employer.

Their money is theirs. A wage paid to the child that immediately funds your vacation is not a wage. It's a round trip. If they save it, Roth IRA conversations for earned income can come later with an advisor. Don't skip to that chapter.

Labor and safety laws still exist. This is a tax article, not an employment-law green light. Age limits, hazardous work, and school-hour rules are a legal call. That's a lawyer's lane. I want you protected. Get your attorney on it before you move.

Who this is for (and who should skip)

Consider it if:

You have a real operating business or rental operation with tasks a kid can do
You will supervise, document, and pay a market rate
The dollars are big enough to matter after payroll friction

Skip or wait if:

The "job" is loading the dishwasher at home
You're under the line where extra strategy is theater. Under ~$400K, get structure and books right first. Family payroll can still be a clean, small win. It should not be the whole personality of your tax plan.
You want a zero-tax fairy tale. We don't do those.

Make more before you save more. If the business isn't producing, hiring your toddler as "director of vibes" will not fix the P&L.

How it sits next to the rest of the plan

Family wages are one lever. They are not a substitute for reasonable salary for you, an accountable plan for your expenses, or a Solo 401(k) when the profit is there.

Year-end is when people try to invent a year's worth of timesheets in a weekend. Don't. See year-end tax planning. If the work happened, the log already exists.

The short version

Hire kids for real, age-appropriate business work at a reasonable wage.
Document hours and duties. Pay through real channels.
Sole props owned by parents can get a FICA break for children under 18. S-corps generally do not get that break.
Wages are earned income. Don't mix that up with kiddie-tax investment games.
Labor law is separate. Talk to an attorney on the employment side.
Under $400K, keep it honest and modest. Over that, put it in the full plan with salary, retirement, and books.

FAQs

Can I hire my kids to save on taxes?

You can employ them for real work and deduct reasonable wages. The savings come from moving income to the child's return and, in some unincorporated parent-owned businesses, from payroll-tax exceptions. Fake jobs don't count.

Do I pay Social Security tax when my S-corp pays my child?

Usually yes. The special exception is generally for a child employed by a parent's sole proprietorship (or certain partnerships of parents), not for a corporation. Confirm your entity before you model FICA at zero.

How much can I pay my child?

A reasonable amount for the work, hours, age, and local market. There is no official "max TikTok number." Overpay and it looks like a gift.

Does the kiddie tax apply to wages I pay my child?

Kiddie tax is mainly about unearned income. Wages from a real job are earned income. Investment income in the child's name is a different conversation.

Can I pay them in cash and skip payroll?

You can create a documentation problem. Use a trail the IRS could follow: payroll reports, bank deposits, timesheets.

What if my kids are toddlers?

Then you probably don't have bona fide, age-appropriate work at a serious wage. Don't force it.

References

What to do next

Thinking about putting your kids on the books, or already Venmo-ing them and calling it payroll?

At CEOHAVEN, we help entrepreneurs and real estate investors with tax planning, tax preparation, and bookkeeping. You should only run family wages that look like employment, because that's what they are.

Book a call. We'll look at your entity, the actual work, and whether family payroll belongs in this year's plan.

It's not about how much you make. It's about how much you keep.

Hire Your Kids on Payroll: How to Shift Income Without Fake Jobs