At a glance
- What it is
- Putting your children on payroll for real work in your business, at a reasonable wage.
- What it saves
- Income tax at your rate on the wages, which your child’s standard deduction shelters federally up to $16,100 in 2026.
- Best fit
- Owners with kids old enough to do real work.
- Main catch
- The work, the hours, and the pay all have to hold up. Timesheets, a W-2, and wages actually paid to the child.
- Payroll tax
- None for kids under 18 in a business owned only by their parents (sole prop, or a partnership of the parents). S corps pay it.
Key takeaways
- Paying your children reasonable wages for real work makes the wages deductible, and their standard deduction shelters up to $16,100 federally in 2026.
- It fits owners with kids old enough for real work; sole props and parents-only partnerships also skip payroll tax for kids under 18.
- In the illustrative example, $16,100 of wages saves the parent $3,864 of federal and about $725 of Oklahoma income tax.
- The catch: the work, hours, and pay must hold up with timesheets and a W-2, and S corps still owe payroll tax.
Watch the story
A one-minute story about this strategy. Illustrative story; the people are fictional and are not clients. See all story videos.
The numbers
Picture a parent in the 24% federal bracket who hires their 15-year-old to handle filing, cleaning, and the business’s social media, and pays $16,100 in wages for the year. The business deducts the wages, and the child’s 2026 federal standard deduction covers all of it.
Personal tax (federal and Oklahoma)
For illustration purposes. Tax law may change, which may change these calculations slightly.
| Amount | |
|---|---|
| Wages deducted by the parent’s business | $16,100 |
| Child’s federal income tax ($16,100 wages − $16,100 standard deduction) | $0 |
| Parent’s federal income tax saved ($16,100 × 24%) | $3,864 |
| Parent’s Oklahoma income tax saved ($16,100 × 4.5%) | about $725 |
Payroll tax on the child’s wages
| Parent-owned sole prop | S corp | |
|---|---|---|
| Social Security and Medicare on $16,100 (employee + employer, 15.3%) | $0 | $2,463 |
For a sole proprietor, the wages also come off the parent’s self-employment income, saving about $2,275 of self-employment tax ($16,100 × 92.35% × 15.3%). In an S corp, the child’s wages carry payroll tax like anyone else’s, so the income tax savings have to be weighed against about $2,463 of payroll tax.
The $0 is federal. Oklahoma’s standard deduction is much smaller than the federal one, so a child earning $16,100 may owe a modest amount of Oklahoma income tax. It is still usually far less than the tax at the parent’s rate.
Could this strategy work for your business?
In a free tax analysis, your tax strategist checks whether it fits and what it could save, using your real numbers.
How it works
- Give them real work. Filing, cleaning, social media, data entry, or appearing in your ads and website photos. Work you would otherwise pay someone to do.
- Set a reasonable wage. Pay what you’d pay an unrelated person of similar age and skill for the same work.
- Run it through payroll. Keep timesheets, issue a W-2, and pay the child from the business account into an account in the child’s name.
- The business deducts the wages. Your taxable business income goes down by the amount paid.
- Your child files their own return if required. Their standard deduction shelters wages up to the federal limit.
Who it fits
- Owners with kids old enough to do real work in the business.
- Sole proprietors and parent-only partnerships, where wages to kids under 18 also skip Social Security and Medicare.
- S corp owners in higher brackets, where the income tax savings outweigh the payroll tax. (Strategy 07, the family management company, is one way S corp owners address the payroll tax.)
When it doesn’t fit
- Kids too young to do the work you’d be paying them for.
- “Wages” for chores around the house rather than work for the business.
- Pay rates far above what the job is worth.
The rules
- Real services, reasonable pay. The wage is deductible only if it is for work actually performed and the amount is reasonable for that work.
- Payroll exemption is narrow. Wages to a child under 18 are exempt from Social Security and Medicare only when the employer is a sole proprietorship owned by the parent, or a partnership whose only partners are the child’s parents. Corporations, including S corps, don’t qualify.
- The child’s standard deduction. A dependent’s standard deduction is based on earned income, so wages count in full, up to the regular single amount ($16,100 for 2026).
- The money is the child’s. Wages must actually be paid to the child. It can fund their savings, a Roth IRA (see Strategy 06), or expenses that are theirs, but it shouldn’t cycle back to cover your own bills.
Risks to weigh
- Thin records. Without timesheets, job descriptions, and pay records, the IRS can disallow the deduction.
- Unreasonable pay. Paying a young child adult professional rates invites a challenge.
- Payroll compliance. Payroll filings, W-2s, and Oklahoma withholding and unemployment rules still apply where required.
How we handle it for clients
With a Cannon & Brown tax plan, we check whether your entity qualifies for the payroll tax exemption, help you set a wage you can support, give you a simple timesheet and job description, and make sure the wages run through payroll and land correctly on both returns. Because our technology keeps your numbers current all year, we can test this strategy against your real numbers and adjust it as your business changes.
Illustrative example. The family and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes $16,100 of wages to a child under 18, a parent in the 24% federal bracket, a 4.5% Oklahoma rate, and self-employment income below the Social Security wage base. This page is educational and is not tax advice for your situation; tax rules and limits change.
Brooks leads Cannon & Brown Tax Advisors, a forward-thinking tax firm serving business owners in Oklahoma and beyond. He builds year-round tax strategies that help business owners keep more of what they earn and reach their goals. More about Brooks
Common questions about hiring your children
Can I pay my kids through my S corp?
Yes, but the wages carry Social Security and Medicare like anyone else’s, about $2,463 on $16,100 in the illustrative example. Higher-bracket owners weigh that against the income tax savings, and a family management company is one way to address it.
What jobs can my kids do for my business?
Real work you’d otherwise pay someone to do, such as filing, cleaning, social media, data entry, or appearing in your ads and website photos. Chores around the house don’t count.
How much can I pay my child?
What you’d pay an unrelated person of similar age and skill for the same work. Paying a young child adult professional rates invites a challenge.
Will my child owe Oklahoma income tax on the wages?
Possibly a modest amount, because Oklahoma’s standard deduction is much smaller than the federal one. It is still usually far less than the tax at the parent’s rate.
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