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Family Tax Strategy

Hiring Your Kids Tax Calculator

Estimate federal tax savings by shifting income to your children. A legitimate strategy, when done correctly. Enter your scenario below.

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Quick Answer
You can employ your minor children in your business, pay a reasonable wage for real work, and deduct those wages at your marginal rate. The child often owes no federal income tax because wages fall within the standard deduction, and if the business is a sole proprietorship or parent-only partnership and the child is under 18, the wages are also FICA-exempt.

Scenario Details

Example figures, replace with yours

Before paying child
$
$

Must be reasonable for actual work performed.

Advanced: SE Tax Impact

Reasonable Setup

  • Child performs real, necessary work (admin, bookkeeping, marketing, etc.).
  • Pay rate is comparable to a non-family employee.
  • FICA Exempt: Business is unincorporated & child < 18.

Audit Risks

  • Under 14: Ensure work is age-appropriate (simple tasks, modeling).

Estimated Impact

Net Federal Savings
$4,149
Combined Income & SE Tax Savings
Parent Marginal Rate
22.0%
Income Tax Saved
+$2,453
SE Tax Saved
+$1,696
Payroll Taxes Added
-$0
Child's Tax
-$0

Estimates are for education only. Actual savings depend on state tax, credits, and filing specifics.

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Tax planning slots are limited before year-end.

Worked example

A sole proprietor couple pays their 12-year-old $12,000 in 2026

These are the calculator's prefilled defaults: a married couple filing jointly with $200,000 of taxable income from a sole proprietorship pays their child, who is under 14, $12,000 of W-2 wages for real work. The parents are under the Social Security wage base.

Inputs

Worked example inputs
Tax year2026
Parent filing statusMarried filing jointly
Parent taxable income (before paying child)$200,000
W-2 wages to child$12,000
Child ageUnder 14
Business typeSole prop / single-member LLC
Parent over the Social Security wage baseNo

Calculator output

Worked example calculator output
Parent marginal rate22.0%
Income tax saved$2,453
SE tax saved$1,696
Payroll taxes added$0
Child's tax$0
Net federal savings (estimate)$4,149

The child is under 18 and the business is a sole proprietorship, so no Social Security or Medicare tax applies to the wages. The parent's self-employment tax drops by 15.3% of 92.35% of the $12,000, or $1,696. The $12,000 deduction comes off income taxed at 22%, less the $848 drop in the parent's deduction for half of SE tax, so it is worth $2,453 of income tax. The child's wages fall under the 2026 standard deduction, so the child owes no federal income tax. This is an illustration of the math, not a promised result.

Methodology

How this calculator works

The calculator compares the tax the family stops paying when wages move from the parent to the child against any new payroll tax and the child's own income tax.

Formulas

  • SE tax saved (sole prop or partnership) = child wages x 92.35% x 15.3%, or x 92.35% x 2.9% (3.8% with Additional Medicare tax) if the parent is already over the Social Security wage base.
  • Income tax saved = (child wages minus the drop in the parent's deduction for half of SE tax) x the parent's marginal rate at the taxable income you enter. The 0.9% Additional Medicare tax is not part of that deduction.
  • Payroll taxes added = child wages x 15.3% unless the child is under 18 and the business is a sole prop or a partnership owned only by the parents, in which case 0.
  • Child's tax = tax on wages minus the single standard deduction ($16,100 for 2026, $15,750 for 2025). Net savings = income tax saved + SE tax saved minus payroll taxes added minus child's tax, not below 0.

Assumptions

  • The work is real, the pay is reasonable for the work, and wages run through payroll with a W-2.
  • The child has no other income, so the full standard deduction shelters the wages.

What it ignores

  • Wages large enough to push the parent into a lower bracket, and the QBI deduction.
  • FUTA and state unemployment tax, the employer half of payroll tax being deductible, and payroll service costs.
  • State income tax, the kiddie tax on unearned income, and the child's own credits.

Sources

Primary sources

  1. IRS: family employees: FICA and FUTA rules for a child employed by a parent
  2. IRS Publication 15 (Circular E), employer's tax guide: family employees in section 3 and the treatment of special types of employment
  3. 26 U.S. Code Section 3121: definitions (FICA): section 3121(b)(3)(A) excludes a child under 18 employed by a parent
  4. 26 U.S. Code Section 3306: definitions (FUTA): section 3306(c)(5) excludes a child under 21 employed by a parent
  5. 26 U.S. Code Section 1401: rate of self-employment tax: 12.4% Social Security and 2.9% Medicare, plus 0.9% Additional Medicare tax
  6. 26 U.S. Code Section 162: trade or business expenses: deduction for reasonable compensation for services actually rendered
  7. IRS Rev. Proc. 2025-32: 2026 inflation adjustments: 2026 brackets (section 4.01), $16,100 standard deduction and the dependent standard deduction rule (4.14)
  8. IRS Rev. Proc. 2024-40: 2025 inflation adjustments: 2025 brackets used when the 2025 tax year is selected
  9. 26 U.S. Code Section 63: taxable income defined: standard deduction, including the 2025 amount as amended in 2025
  10. IRS Publication 501: dependents, standard deduction, and filing information: standard deduction for a dependent with earned income

Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last reviewed October 20, 2026. Taxstra is a CPA firm for high income earners, business owners and real estate investors, serving 1,000+ clients in all 50 states.

Educational, not individualized tax advice.

How Hiring Your Kids Works

When you own a business, you can employ your minor children and pay them a reasonable wage for real work they perform. The wages are deductible to the business, which reduces taxable income at your marginal rate. Those same wages are taxable to the child, but at the child's much lower rate, often zero after the standard deduction. The result is a shift of income from a high bracket to a low or zero bracket within the same household.

The strategy works best for parents who own unincorporated businesses (sole proprietorships or parent-only partnerships) and have children under 18. In those circumstances, an additional benefit kicks in: wages paid to a child are exempt from FICA taxes (Social Security and Medicare), which saves the family about 14 cents of self-employment tax on every dollar paid (15.3% of 92.35%), a layer of savings that does not exist when the business is an S-Corp or C-Corp. Visit the hiring-your-kids strategy page for the full picture.

The Tax Math: A Worked Example

Take a married couple filing jointly with $250,000 of taxable income from a sole proprietorship, which puts them in the 24% federal bracket for 2026. They hire their 15-year-old to manage social media, photograph products, and handle administrative filing, and pay $15,600 for the year (about $300 a week).

Because the business is a sole proprietorship and the child is under 18, FICA taxes do not apply to the wages. The parents' self-employment tax drops by 15.3% of 92.35% of the wages, or $2,204. The wage deduction saves $3,479 of federal income tax at 24%, after the $1,102 drop in their deduction for half of SE tax. The child's $15,600 is under the $16,100 standard deduction for 2026, so the child owes $0 of federal income tax. Total family savings: about $5,684 for the year.

ScenarioParent Income Taxed at 24%
Without Strategy$15,600 taxed at 24%
With Child Employed$0 (deducted to business)
ScenarioParent Income Tax Saved
Without Strategy-
With Child Employed$3,479
ScenarioSE Tax Saved (sole prop, child under 18)
Without Strategy-
With Child Employed$2,204
ScenarioChild's Federal Income Tax
Without Strategy-
With Child Employed$0 (within std deduction)
ScenarioNet Family Savings
Without Strategy$0
With Child Employed$5,684

IRS Requirements: What Makes This Defensible

The IRS applies heightened scrutiny to family employment arrangements because the incentive to abuse them is obvious. A defensible setup requires four things:

  • Real work: The child must perform actual, necessary services for the business. Fictitious jobs do not qualify.
  • Reasonable pay: The wage must be comparable to what you would pay a non-family employee to do the same work. Overpaying a child to maximize the deduction is a red flag.
  • Documentation: Maintain written job descriptions, time sheets with dates and tasks, pay stubs, and issued W-2s at year end.
  • Payroll structure: Wages must flow through actual payroll, not cash payments, gifts, or informal transfers. The child must receive a W-2, not a 1099.
Watch Out
S-Corp owners: FICA does not disappear. If your business is an S-Corp, wages paid to your child are subject to full payroll taxes regardless of age. The FICA exemption only applies to unincorporated businesses (sole props and parent-only partnerships). This significantly reduces the net savings for S-Corp owners; factor this in before hiring your child through that entity.

Combining with Other Strategies

Child employment works well alongside other income-shifting and deduction strategies. The wages earned by the child are earned income, which means the child can fund a Roth IRA, up to the lesser of earned income or the annual contribution limit. Funding a Roth IRA for a 15-year-old creates decades of tax-free compounding growth from dollars that were never taxed.

Families with S-Corps can still use the strategy, just without the FICA exemption. In that case, the income tax shift still applies, and the deduction at the parent's marginal rate still creates meaningful savings even after payroll taxes are factored in. The calculator above handles all of these scenarios. You can also review the Accountable Plan strategy to stack additional tax-free reimbursements from the same S-Corp.

Hiring Kids Strategy Guide
Full strategy page with IRS rules
S-Corp Calculator
Model S-Corp savings
Accountable Plan Guide
Tax-free reimbursements

Frequently Asked Questions

Can I hire my child if I have an S-Corp?

Yes, but the FICA exemption does not apply to S-Corps. If your business is an S-Corp, wages paid to your child are fully subject to payroll taxes (Social Security and Medicare) regardless of the child's age. The strategy is most tax-advantaged when the parent operates as a sole proprietorship or a partnership owned entirely by the parents.

What work can a child under 14 actually do?

Children under 14 can perform tasks appropriate to their skill level: modeling or appearing in ads, simple data entry or filing, helping with social media content, light cleaning or organizing at a business location, and assisting at trade shows or events. The work must be genuine, the pay rate must be reasonable for the tasks performed, and you must document time worked. Age-inappropriate or fictitious work is a major audit trigger.

What is the standard deduction for a dependent child's wages?

For 2025, the standard deduction for a single filer (including a child with earned income) is $15,750. For 2026, it is $16,100. Wages paid up to this amount are generally not subject to federal income tax for the child, meaning the family shifts income from the parent's high bracket to a zero-bracket environment for the child, a substantial tax efficiency.

Do I need to withhold payroll taxes for my child?

It depends on business type and child age. If the child is under 18 and the business is a sole proprietorship or partnership owned only by the parents, FICA taxes (Social Security and Medicare) do not apply. FUTA (federal unemployment) also does not apply to children under 21 employed by a parent's sole prop or partnership. In all cases, federal income tax withholding still applies if the child's wages exceed their standard deduction, but the net tax owed may still be zero.

What records do I need to keep?

Maintain a written job description, time sheets or work logs with dates and hours, evidence of the work product (photos, files created, tasks completed), pay records showing the wage rate and how it was determined, and issued W-2 forms at year end. The IRS can disallow the deduction if you cannot show the work was real, the pay was reasonable, and you kept contemporaneous records.

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