Ever wish your kid could do more than just chores around the house? What if paying them could actually lower your tax bill?
For business owners with kids under 18, there’s a little-known strategy that can save you over $5,000 a year in taxes—legally. All it takes is putting your child on payroll to perform age-appropriate tasks (and yes, it has to be real work).
Want to see how this works in real life? Jump to the example »
Which business owners qualify for this tax reduction strategy?
All profitable business owners can take advantage of this tax reduction strategy, including
- Sole proprietorships
- Single-member LLCs
- Parental partnerships
- Partnerships
- S and C corporations
Parental partnerships (i.e. two partners, and both partners are the child’s parents), sole proprietorships and single-member LLCs can hire their young children directly, on a W-2.
This process will be a bit more complex for non-parental partnerships, S Corps and C Corps, and will involve a few additional steps, but the tax savings will still be there!
Where do the tax benefits of hiring your kids come from?
While your individual tax bracket may be 37% on the federal level, your child’s tax rate is most likely 0%. By hiring your child, you shift income from the highest tax bracket to the lowest tax bracket.
Your child can earn up to the standard deduction for single filers ($15,000 in 2025), completely federal tax-free. As long as the strategy is set up correctly, they also avoid paying Social Security or Medicare taxes.
Additionally, because the child’s salary is considered a business expense, the parents’ business will be entitled to a deduction.
How high can the tax savings be for high-income-earning business owners?
High-income-earning business owners can expect to save over $5,000 per child with this tax reduction strategy.
Ready to see this strategy in action?
Here is an example of this strategy in action, along with the savings it provides.
The Setup
Imagine a high-income business owner with a single-member LLC has two children, ages 12 and 14. The family files jointly with a pre-tax household income of $800,000, putting them in the 37% federal tax bracket.
The Strategy
Each child is hired to do age-appropriate work for the business and earns exactly the standard deduction of $15,000 (as of 2025). That income is tax-free to the child and deductible by the business.
The Savings
Our calculation is as follows:
| Calculation: | Tax rate x child’s annual salary x number of children |
| In our client’s case: | 37% x $15,000 x 2 |
As you can see, our business owner would save approximately $11,100 by hiring his children (in the form of a deduction for their business).
The Long-Term Impact
This is not a one-time deduction. This strategy can be applied in the years to come. For example, over five years, this strategy could save the family $55,500 in taxes.
How much should I pay my child to maximize tax benefits?
High-income earners who want to make the most of this tax strategy should plan to pay their child up to the standard deduction amount each year. In 2025, that amount is $15,000. This way, the employed child will avoid owing federal income taxes.
That being said, in some cases it might not be possible for the child to earn this entire amount, e.g., if the child is young and earning a minimum wage, or if the child’s school and extracurricular activities make it impossible to work more hours.
Parents must make sure they pay their children a fair-market salary for their work. The IRS will not look kindly upon a parent paying their child $100 an hour to shred paper or clean an office.
It is also important that you do not pay your child more than you would pay an unrelated third party.
What kind of work can my child perform for my business?
You can hire your children under 18 years of age to perform age-appropriate tasks for your business. These tasks must also be necessary for the business.
The work your child performs will depend on your child’s age and the type of business you are running.
Younger children may shred paper or help clean corporate or home offices. They can also greet clients.
Older children may help you with social media marketing, website management, research, advertising or overseeing client scheduling.
Some of our clients also have their children appear in their business’s promotional materials, such as in TikTok or Instagram posts, or on their website.
It is important to keep in mind that regular household chores, doing homework or babysitting a sibling, are not business activities – and a child cannot receive a salary through your business for such tasks.
What can I do with my child’s income?
Your child’s salary should be paid into the child’s own bank account. If your child does not have their own bank account, make sure to set one up for them before they begin working for your business.
As a parent or legal guardian, you can administer your child’s bank account and use their income for any child-related expenses, including books, clothing, school tuition, college funds, educational trips, or an allowance.
These are expenses that would have been incurred either way, but now can be obtained with tax-free and tax-deductible funds.
Are there any other tax benefits to hiring children for high-income earners?
Another benefit is using your child’s salary to fund their Roth IRA account.
Because your child will have earned income, they can contribute up to $7,000 annually to a Roth IRA. This money can then grow tax-free over the years, and give your child a great boost when they reach retirement age.
Can I pay my child over the standard deduction?
For the purposes of this particular tax reduction strategy, we want to:
- Create a tax deduction for the business owner
- Ensure no federal income taxes are owed by the employed child
- Ensure that no Social Security or Medicare taxes are paid by the employed child
- Allow the business owner/parent to administer their child’s salary (if desired)
The best tax benefit will be obtained by hiring children under 18 years of age, and at or under the standard deduction amount.
High-income-earning business owners are, of course, free to compensate their child more than the standard deduction amount if they so desire, as long as it is for legitimate and necessary work for the parents’ business. However, this may cause additional federal and state tax liability, as well as trigger Social Security or Medicare taxes.
How to implement this tax reduction strategy?
This strategy comes with several caveats, depending on your business’s legal entity structure, the type of business you own, and your child’s age.
While we highly recommend working with a tax strategist or experienced tax reduction planning CPA firm when implementing this strategy, here are a few things to look out for:
- Children must work for the business: household chores, babysitting a sibling, walking the dog or doing homework are not business tasks. Parents cannot pay their children for these types of tasks through their business.
- Work must be legitimate and necessary: the work your child performs for the business must make sense and be necessary for the business. For example, most businesses need a website, and your tech-savvy teenager can help you create one, or refresh an existing website.
- Age-appropriate work: any work the child performs for your business must match their age and skill set. A child who is 10 years old cannot be expected to do the bookkeeping, but they can help you clean your office, shred paper, greet customers or perhaps organize inventory.
- Work-appropriate pay: you must pay your child a fair market salary for the work they perform. Pay your child as much as you would pay any unrelated employee. In many cases, this will be the minimum wage for your state. You can research average hourly pay on websites such as Glassdoor. It goes without saying that in case of an IRS audit, inflated wages or inflated hours will raise red flags.
- Immaculate record-keeping: make sure you and your child keep very detailed records of dates the child worked, how many hours they worked on each specific date, as well as the tasks that were performed.
- Correct payroll setup: this is perhaps the most important condition for the strategy to work correctly. In order to avoid federal and payroll taxes, children cannot be hired as independent contractors (1099), and should be on payroll. This is also where things get very tricky – as spousal partnerships, sole proprietorships and single-member LLCs can hire children on their payroll directly, while S Corporations, C Corporations, and non-spousal partnerships will need to jump through a few additional hoops.
The Takeaway: Save on Taxes, Invest in Your Kids
High-income earners who own a business can hire their children (under 18 years of age) to work for their business.
Income tax savings can exceed $5,000 per child.
A child’s salary can be used for any childcare-related purchase, or even to fund a Roth IRA account.
It is very important to implement the strategy correctly, especially when it comes to setting up the child’s payroll, the types of tasks your child will perform for your business, and the amount they are paid.
This is just one way tax reduction planning can have a tangible impact on your bottom line, and why it makes sense to consult with a tax reduction planning strategist, such as Ratio CPA.
Next Steps: Let’s Talk About Your Tax Savings
Curious if this strategy could work for your family and business?
Book a quick call with our team to find out how much you could be saving, and how to do it the right way.
We’ll walk you through:
- Whether your business qualifies
- What tasks your child can legally be paid for
- How to stay compliant with the IRS
- And how much you could realistically save each year
It’s a smart move that could save you thousands, year after year.
