What age can a child start working in the business?

There's no IRS minimum age — but the work must be genuine and age-appropriate, and the wages must be reasonable for the work performed. A 7-year-old shredding documents or a 12-year-old managing your social media calendar is plausible with documentation. A 7-year-old as "Director of Operations" is not.

Does this work for an S-corp owner?

Partially. The FICA exemption for children under 18 applies to sole proprietorships and partnerships owned by the parent(s) — not S-corps. Because the S-corp is a separate legal entity, it must withhold and pay FICA on all employee wages, including a child's. The income-shifting benefit still applies — wages paid to the child shift income from the parent's high bracket to the child's low bracket — but the payroll tax savings are smaller than in a sole prop.

What kind of work counts?

Legitimate work that the business actually needs done: office cleaning, filing, data entry, social media content creation, product photography, administrative tasks, website updates, helping at events. The work needs to match the child's age and capabilities. Keep a simple log: date, task, hours worked, hourly rate.

How much can I pay them?

Wages must be reasonable for the work performed — what you'd pay a non-family employee for the same work. The standard deduction (approximately $14,600 in 2025) is the natural ceiling for tax-free income if you're trying to keep the child's tax bill at zero. Wages above that are taxed at the child's lower rates. Wages far above market rate for the actual work performed are an audit flag.

Does my child need to file a tax return?

If their earned income exceeds the standard deduction ($14,600 in 2025), yes. For wages below that threshold, a return is generally not required — but you may still want to file one if you're contributing to a Roth IRA on their behalf (earned income is required for IRA contributions).

Can my child contribute to a Roth IRA with their wages?

Yes. Earned income from legitimate employment qualifies for Roth IRA contributions. A child with $7,000 in wages can contribute $7,000 to a Roth IRA — and at their tax rate (often zero), there's no tax cost on the contribution. Compounding over 50+ years from that point is significant. This is one of the most underused aspects of the strategy.

Tax strategy

Paying Your Children Through Your Business: The Tax Strategy That Actually Works

Paying your minor children as legitimate employees is a real tax strategy — but it requires real work, real wages, and real documentation. The sole prop and S-corp versions work differently. Here's what holds up under scrutiny.

Written by Matt Reese, CPA · 7 min read · Published April 2026·Share on LinkedIn

Key Takeaways

Children under 18 employed by a parent's sole proprietorship or single-member LLC pay no Social Security or Medicare tax on their wages — the FICA exemption is real and significant.
The strategy requires genuine work at fair market wages. You cannot pay your 10-year-old $40,000/year for occasional help around the office. The work must be legitimate and the pay must match what you'd pay anyone else.
Children's standard deduction shelters their first ~$14,600 (2025) from income tax. Wages in that range are effectively tax-free income they can use for education savings, Roth IRA contributions, or personal expenses.
S-corps must withhold and pay FICA on children's wages — the FICA exemption only applies to sole proprietorships and partnerships owned by the parent(s). The S-corp advantage is smaller but the income-shifting still works.
Common failures: paying cash with no W-2, paying for household chores, wages far above fair market, no job description or time records. These are the audit flags.

Real work. Fair wages. Actual records. Those three things are the whole strategy.

The IRS doesn’t challenge the concept — it challenges implementations that don’t look like real employment. If you have documentation that your child performed real services at reasonable pay, with a W-2 and a business bank account check, the strategy holds up. If you paid cash, wrote no records, and the wages were for household chores, it doesn’t.

Why this strategy exists

The federal tax code allows parents to employ their minor children in their business. The income-shifting logic is straightforward: wages paid to the child are a deductible business expense for you (reducing income taxed at your marginal rate) and income to the child (taxed at their lower rate — often zero after the standard deduction).

The FICA exemption makes it more powerful for sole proprietors: children under 18 employed by a parent’s sole proprietorship or single-member LLC don’t owe Social Security or Medicare tax on those wages. You also don’t pay the employer’s share. On $14,000 in wages, that’s approximately $2,140 in FICA taxes that simply don’t apply.

Sole proprietor hiring a 16-year-old for summer + part-time work

Wages paid to child$12,000/year

Deduction to parent (at 32% combined rate)$3,840 tax savings

FICA exemption (no SS/Medicare on child wages)$1,836 savings (15.3%)

Child's income tax (under standard deduction)$0

Total family tax savings vs. no strategy~$5,676

Optional: child contributes $7,000 to Roth IRATax-free compounding from age 16

The same $12,000 that would have been taxed at the parent's marginal rate is now received by the child tax-free, with no FICA. The Roth IRA contribution is the bonus play.

S-corp owners: the strategy still works, differently

When an S-corp employs a child, the FICA exemption doesn’t apply — the S-corp is a separate legal entity and must withhold and pay payroll taxes on all employee wages. So on $14,000 in wages, the S-corp pays approximately $1,071 in employer FICA and the child pays approximately $1,071 in employee FICA.

The income-shifting benefit still applies: the parent deducts the wages through the S-corp, and the child pays income tax on them — at a much lower rate. The net saving is smaller than the sole prop version but still meaningful, especially at higher parental income levels.

What the implementation actually looks like

Set up the child as an employee with a W-2. Pay them through the business bank account — not cash. Keep a simple work log: date, task performed, hours, and hourly rate. Issue a W-2 at year-end. If they earn enough to warrant it (i.e., more than $400 in net earnings, though wages are not subject to SE tax), have them file a tax return.

The most defensible implementations treat it like real employment from day one — because it is real employment. The tax benefits are a byproduct of legitimate business activity, not a justification for a paper transaction.

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Frequently asked

Questions owners actually ask

What age can a child start working in the business?: There's no IRS minimum age — but the work must be genuine and age-appropriate, and the wages must be reasonable for the work performed. A 7-year-old shredding documents or a 12-year-old managing your social media calendar is plausible with documentation. A 7-year-old as "Director of Operations" is not.
Does this work for an S-corp owner?: Partially. The FICA exemption for children under 18 applies to sole proprietorships and partnerships owned by the parent(s) — not S-corps. Because the S-corp is a separate legal entity, it must withhold and pay FICA on all employee wages, including a child's. The income-shifting benefit still applies — wages paid to the child shift income from the parent's high bracket to the child's low bracket — but the payroll tax savings are smaller than in a sole prop.
What kind of work counts?: Legitimate work that the business actually needs done: office cleaning, filing, data entry, social media content creation, product photography, administrative tasks, website updates, helping at events. The work needs to match the child's age and capabilities. Keep a simple log: date, task, hours worked, hourly rate.
How much can I pay them?: Wages must be reasonable for the work performed — what you'd pay a non-family employee for the same work. The standard deduction (approximately $14,600 in 2025) is the natural ceiling for tax-free income if you're trying to keep the child's tax bill at zero. Wages above that are taxed at the child's lower rates. Wages far above market rate for the actual work performed are an audit flag.
Does my child need to file a tax return?: If their earned income exceeds the standard deduction ($14,600 in 2025), yes. For wages below that threshold, a return is generally not required — but you may still want to file one if you're contributing to a Roth IRA on their behalf (earned income is required for IRA contributions).
Can my child contribute to a Roth IRA with their wages?: Yes. Earned income from legitimate employment qualifies for Roth IRA contributions. A child with $7,000 in wages can contribute $7,000 to a Roth IRA — and at their tax rate (often zero), there's no tax cost on the contribution. Compounding over 50+ years from that point is significant. This is one of the most underused aspects of the strategy.

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Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.