Thinking About Hiring Help This Summer? Consider Putting Your Child on the Payroll

With summer on the horizon, you may be planning to bring in extra help for your small business. If your child is looking to earn some money, this could be the perfect opportunity — for both of you. Employing your child can offer significant tax advantages, all while helping them gain valuable work experience.

Here are three key tax benefits to consider:

1. Shift Taxable Income to a Lower Bracket

By hiring your child, you can move some of your business income — which may be taxed at a high rate — to your child, who is likely in a much lower tax bracket or even tax-free. To qualify for a deduction, the work must be legitimate, the pay must be reasonable, and detailed records should be kept to document hours and job duties.

Example:

If you're a sole proprietor in the 37% tax bracket and you hire your 17-year-old daughter for office help, paying her $12,000 over the year, your business could deduct that amount, reducing your taxable income. If your daughter has no other income, the $12,000 would be covered by the 2025 standard deduction for single filers ($15,000), resulting in no federal income tax owed on her earnings.

Even if her earnings exceed the standard deduction, the extra income would be taxed at her lower rate, starting at just 10%, instead of your higher bracket.

2. Avoid Payroll Taxes (FICA and FUTA)

If your business is unincorporated, employing your child can also help you save on payroll taxes. Wages paid to a child under age 18 by a parent-owned sole proprietorship (or a partnership consisting only of the child’s parents) are exempt from Social Security and Medicare taxes (FICA). Additionally, payments to a child under age 21 are exempt from federal unemployment tax (FUTA).

** Note: If your business is a corporation or includes non-parent partners, these exemptions don’t apply. However, there’s no added tax burden if you’re simply paying your child for work you would otherwise hire someone else to do.

3. Open the Door to Retirement Savings

Hiring your child can also help them start saving for the future. If your business has a retirement plan, your child may be eligible to receive employer contributions. For example, under a SEP IRA, you can contribute up to 25% of your child’s compensation, up to a maximum of $70,000 in 2025.

Alternatively, your child can contribute to their own traditional or Roth IRA. For 2025, the contribution limit is the lesser of $7,000 or their earned income. While early withdrawals from a traditional IRA before age 59½ are generally subject to a 10% penalty, there are exceptions for things like college costs or a first home purchase (up to $10,000).

More Than Just Tax Perks

Beyond the tax savings, employing your child comes with practical life benefits: they gain real-world work experience, learn responsibility, and get insight into your business operations. Plus, they’ll have their own spending money — and possibly even a head start on retirement savings.

If you're considering this strategy, discuss with us the specifics. Tax rules can change from year to year, and it's important to stay compliant while maximizing your benefits.