Hiring Your Kids: A Real Strategy Buried Under Terrible Internet Advice

Few strategies get butchered on social media like this one. The genuine version — employing your children for real work at market wages — is legitimate, IRS-recognized, and quietly powerful. The TikTok version — “pay your toddler $12,000 to be a brand model” — is a penalty generator. Let’s separate them.

Why it works when it works

Three mechanisms stack:

Income shifting. Wages you pay a child are deductible to the business at your marginal rate (say 35%+ combined) and taxable to the child — who has their own standard deduction (north of $16,000 currently). Pay a child up to that amount for real work and the income lands in a 0% bracket. The family unit keeps money that would have gone to tax.

Payroll tax exemption — with a catch. Wages paid to your under-18 child are exempt from Social Security and Medicare taxes only if the employer is a parent’s sole proprietorship or a partnership owned solely by the parents. Not a corporation. Not an S-corp. This is the detail the internet skips, and it matters below.

Roth IRA fuel. Earned income makes a child IRA-eligible. A teenager earning $7,000 who funds a Roth at 15 has four-plus decades of tax-free compounding ahead — arguably the single best account opening in personal finance.

The S-corp complication (read this before doing anything)

If your business is an S-corp — as most of our clients’ are — wages to your child are not FICA-exempt. The strategy still works (deduction at your rate, 0% bracket for the child, Roth eligibility), it just leaks 15.3% payroll tax on the way through, which shrinks the benefit.

The workaround you’ll see promoted — a family management company (a parent-owned sole proprietorship that “employs” the kids and bills the S-corp) — can be legitimate, but only with real substance: an actual business purpose, contracts, invoices, and genuine services flowing through it. Bolted on purely to dodge FICA, it’s the kind of structure that reads terribly in an exam. Get advice before building it; don’t buy it from a course.

What “real work” means

The work must be age-appropriate, actually performed, and paid at a reasonable market rate. Filing, shredding, cleaning the office, managing social media, photography, modeling for genuine marketing materials, deliveries, inventory counts — all defensible with documentation. $50/hour for vague “brand ambassador” duties is not.

The documentation set: a simple job description, timesheets, wages paid through actual payroll (W-2, not Venmo), at intervals like any employee, ideally into the child’s own account. The IRS wins these cases on missing paperwork far more often than on the concept.

Boundaries worth knowing

•             Child labor laws still apply — hours and duties are regulated, more so under 16.

•             Wages must be for business services, not chores. Mowing the office lawn, yes; mowing your lawn, no.

•             The child likely files a simple return; the “kiddie tax” doesn’t touch earned income, so no trap there.

•             This doesn’t affect your ability to claim the child as a dependent.

Done honestly, a family with two working teenagers can shift $20,000–30,000 a year into 0% brackets and seed two Roth IRAs. Done sloppily, it’s back taxes, penalties, and an examiner with momentum. The difference is entirely in the execution.

Romanchuk CPA LLC structures family employment for business-owner clients — payroll, documentation, and the honest answer on whether the management-company layer is worth it in your case. Book at rfg.tax.

This article is general information, not tax advice for your specific situation.