With summer fast approaching, many small business owners are looking for extra help. If your child is also looking to earn some money, why not combine the two? Hiring your child in your business can be a great opportunity for them to gain experience—and it can offer meaningful tax savings for your family.
Shift Business Income and Save on Taxes
By hiring your child in your business, you can transfer some of your high-taxed income to your child in the form of wages. If the work is legitimate and the pay is reasonable, these wages are deductible as a business expense.
Example: Let’s say you’re a sole proprietor in the 37% tax bracket. You hire your 17-year-old daughter to help with office work, and she earns $10,000 for the year. If she has no other income, her earnings can be completely offset by the $15,000 standard deduction (for single filers in 2025). That saves you $3,700 in income taxes—without costing her a dime in federal income tax.
Even if her earnings exceed the standard deduction, the excess is taxed at just 10%, compared to your much higher rate.
READ MORE: 18 Tax Deductions for Small Businesses
Reduce Payroll Taxes (If Your Business Qualifies)
If your business is a sole proprietorship—or a partnership made up only of the child’s parents—you may also save on payroll taxes. Wages paid to your child under age 18 are not subject to Social Security and Medicare taxes (FICA), and wages paid to children under age 21 are exempt from federal unemployment tax (FUTA).
These exemptions don’t apply to incorporated businesses or partnerships that include non-parent partners, but even in those cases, paying your child a fair wage for real work is still a smart strategy.
Note: There’s no FICA or FUTA exemption for hiring your child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.
READ MORE: Tax Dos and Don’ts for Hiring Your Child
Jumpstart Retirement Savings
Hiring your child in your business can also set them up for long-term financial success. If your business offers a retirement plan—like a SEP IRA—you may be able to contribute up to 25% of their earnings (up to $70,000 for 2025).
Your child can also contribute to a traditional or Roth IRA. For 2025, the contribution limit is the lesser of their earned income or $7,000. These contributions grow tax-deferred (traditional) or tax-free (Roth), giving them a powerful head start on saving for the future.
Bonus: Life Skills and Work Experience
In addition to tax and financial benefits, hiring your child in your business can teach them valuable life skills. They’ll get a better understanding of how your business operates, learn responsibility, and gain confidence—while earning their own money.
Ready to Get Started?
Hiring your child in your business can be a win-win, but the rules must be followed carefully to avoid IRS scrutiny. If you’d like help structuring a family employment arrangement that meets IRS guidelines and maximizes tax benefits, contact us today. We’re here to help you make the most of the opportunity.
Originally posted April 2021. Updated May 2025.