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Lesson · Business · tax

Put your kids on payroll. Everybody wins.

Pay your kids for real work in your business: a deduction for you, low-or-no tax for them, and a head start on their own Roth IRA.

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EARNED
W-2 wages are earned income, which makes a Roth IRA possible

ENTITY MATTERS

Where the wages come from

Social Security tax dueExempt under age 18
Medicare tax dueExempt under age 18
Employer FICA matchNo match owed

How it works

Four things that make it hold up

1
Written job descriptionReal tasks, real business purpose
2
Reasonable hourly rateAt least minimum wage, not $100/hr
3
Time records every periodHours worked, dated, kept on file
4
Actual payroll and a W-2Gusto, ADP, or QuickBooks payroll

WORKED EXAMPLE

At fifteen dollars an hour

500 hrs at $15/hr$7,500
1,073 hrs at $15/hr$16,100
Federal income tax$0 either way

Key points

Tasks that pass the smell test

✓
Clean the office
✓
Empty trash cans
✓
File and shred
✓
Data entry
✓
Social media posts
✓
Inventory counts

WATCH THESE

Where people get it wrong

Minimum wageState can exceed federal
LLC ownershipParents only, no partners
Payroll tax exemptionEnds at age eighteen

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The Hiring Your Kids field guide — one page

The strategy, the checklist, the key numbers, and links to the actual tax code. Print it, take it to your CPA. Free, no strings.

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Field guide · PDF

Hiring Your Kids

Cliff notes + checklist + the law

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The law behind it

Primary sources

Verify against the source before you rely on it. This is education, not legal or tax advice.

26 U.S.C. Sec. 3121(b)(3)(A) — Wages a child under 18 earns from a parent's sole proprietorship or partnership are exempt from FICA.law.cornell.edu/uscode/text/26/3121
26 U.S.C. Sec. 162(a) — The wages are deductible to the business as an ordinary and necessary expense — for genuine work at a reasonable rate.law.cornell.edu/uscode/text/26/162
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