Hiring Your Kids Tax Calculator

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 an additional 15.3% on every dollar paid — 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.

Take a married couple filing jointly with $250,000 in business income — a marginal federal rate of 24%. They hire their 15-year-old to manage social media, photograph products, and handle administrative filing. They pay $15,600 annually (roughly $300 per week for 20 hours per month at an appropriate rate).

The $15,600 wage deduction saves the parents approximately $3,744 in federal income tax (24% rate). Because the business is a sole proprietorship and the child is under 18, FICA taxes do not apply — saving an additional $2,387 in self-employment tax (15.3% × $15,600). The child's federal income tax on $15,600 is minimal because most of it falls within the standard deduction. Total family savings: roughly $6,000+ per year from one strategy.

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.

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.