Hiring Your Children

Paying your children reasonable wages for real work in your business converts high-bracket parent income into low-or-zero-bracket child income while keeping the money in the family. The business deducts the wages; the child can earn up to the standard deduction (over $15,000 for 2025) with zero federal income tax, and earned income lets the child fund a Roth IRA. The payroll tax angle depends on structure: wages paid to a child under 18 by a parent's sole proprietorship, or a partnership owned only by the parents, are exempt from Social Security and Medicare taxes, and FUTA exemption runs to age 21. Corporations and partnerships with non-parent partners get no FICA exemption, leading some owners to pay children through a parent-owned family management company. The non-negotiables: the work must be real and age-appropriate, wages must match market rates, hours should be documented, and pay must actually move to an account in the child's name.