Pay your children for real work
Explore: well supported, often missed.
Paying your children for real work in your business moves income from your tax bracket to theirs, which is usually close to zero. The business deducts the wages, and a child with no other income owes no federal income tax on wages up to the standard deduction.
When the business belongs only to the child's parents, the savings go further: a child under 18 owes no Social Security or Medicare on those wages. The work has to be real, the pay reasonable, and the paperwork in order.
How it works
Wages you pay your child for real work are a deduction for the company. When the company belongs only to the child’s parents (a sole proprietorship, a single-member LLC, or a partnership of the parents), a child under 18 owes no Social Security or Medicare, and no federal income tax up to the standard deduction.
An example: the Harpers
Harper Properties, the rental company Mark and Bea Harper own together in the Cratchit demo, pays their son Noah $8,000 a year to help turn over units between tenants and keep the property photos current.
Because the company is a partnership of Noah's parents and he is under 18, the wages carry no Social Security or Medicare. The company deducts the $8,000, Noah owes no federal income tax on it, and Cratchit estimates the family saves about $2,255 this year. Noah keeps a log of his hours and is paid through payroll into his own account.
What makes it hold up
- Real work for that company, at a rate you’d pay anyone else
- Timesheets or a project log with dates and hours
- Paid through payroll with a W-2, into an account in the child’s name
- NC youth employment certificate for workers under 18
Risks
Low when the work is real and the pay is reasonable. The IRS disallows wages for made-up work or pay far above the going rate. Wages from an S corp lose the Social Security and Medicare exemption.
Questions to ask your CPA
- Does this company qualify for the family exemption?
- What’s a reasonable rate for the work my child does?
- Should part of it go into a Roth IRA in my child’s name?
Common questions
How old does my child have to be?
The tax rules set no minimum age, but the work has to be real, suited to the child's age, and paid at a rate you'd pay anyone else. State child labor rules also apply; in North Carolina, workers under 18 need a youth employment certificate.
Can my S corp pay my children?
Yes, and the wages are still deductible, but S corp wages don't get the Social Security and Medicare exemption. That exemption applies when the business is a sole proprietorship, a single-member LLC, or a partnership owned only by the child's parents.
Does my child have to file a tax return?
Often not, if wages are the child's only income and stay under the standard deduction. Your CPA can confirm for your child's situation.
Can the wages go into a Roth IRA?
Yes. Wages are earned income, so your child can put up to the amount earned, within the yearly limit, into a Roth IRA, where it grows tax-free for decades.
Cratchit runs every strategy in this library against your real numbers, rates it, and keeps the records that make it hold up. Take a guided tour with the Harpers, a sample family.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.