Hiring your children in the family business is one of the simplest legal ways to cut your family’s tax bill in 2026. The wages you pay are a deductible business expense. Your child can earn up to $16,100 this year and owe no federal income tax. If you run a sole proprietorship or a partnership owned only by the parents, wages paid to a child under 18 are also free from Social Security and Medicare taxes.
The idea is simple. Instead of paying for your child’s needs with after tax dollars, you pay them a fair wage for real work with pre tax business dollars. Income moves from your higher tax bracket to your child’s lower one. The IRS allows this, but only when the job is real, the pay is reasonable, and your records are clean. This guide from Nexus United Inc. walks you through the 2026 numbers, the rules, and the mistakes to avoid.
Key Takeaways
- Reasonable wages paid to your child are a deductible business expense.
- In 2026, a working child can earn up to $16,100 with no federal income tax.
- Children under 18 who work for a parent’s sole proprietorship are exempt from FICA taxes.
- Children under 21 are exempt from federal unemployment (FUTA) tax in the same setup.
- The kiddie tax does not apply to wages. It only applies to unearned income.
- Your child can put up to $7,500 of earned income into a Roth or traditional IRA in 2026.
- S corporations and C corporations do not get the payroll tax exemptions.
How Hiring Your Child Lowers Your Family’s Taxes
Hiring your child creates tax savings in three ways.
- You deduct the wages. Every dollar you pay your child for real work lowers your business profit. That lowers your income tax.
- Your child pays little or no tax. Your child uses their own standard deduction and low tax brackets. Most working kids owe nothing.
- You may skip payroll taxes. In the right business structure, neither you nor your child pays Social Security, Medicare, or FUTA tax on those wages. A lower profit also means lower self-employment tax for you.
The money still stays in the family. It simply gets taxed at a much lower rate, or not at all.
2026 Tax Numbers Every Parent Employer Should Know
The One Big Beautiful Bill Act (OBBBA) and the IRS inflation update in Revenue Procedure 2025-32 changed several key figures. Here are the numbers that matter for 2026.
| Tax Item | 2026 Amount |
|---|---|
| Standard deduction (single filer) | $16,100 |
| Dependent standard deduction | Greater of $1,350 or earned income plus $450, capped at $16,100 |
| 10% tax bracket (single) | Taxable income up to $12,400 |
| 12% tax bracket (single) | $12,401 to $50,400 |
| Kiddie tax threshold (unearned income) | $2,700 |
| IRA contribution limit (under 50) | $7,500 |
| Social Security wage base | $184,500 |
| Self-employment tax rate | 15.3% (12.4% Social Security plus 2.9% Medicare) |
| FICA exemption age (parent owned sole proprietorship) | Under 18 |
| FUTA exemption age (parent owned sole proprietorship) | Under 21 |
| Florida minimum wage | $14 per hour, rising to $15 on September 30, 2026 |
How Your Child’s Wages Are Taxed in 2026
The Standard Deduction for a Working Child
A child you claim as a dependent gets a special standard deduction. It equals the greater of $1,350 or their earned income plus $450. It cannot go above the regular single deduction of $16,100.
In plain terms, a child with only wage income can earn up to $16,100 in 2026 and pay zero federal income tax. Wages above that amount are taxed at 10% on the first $12,400 of taxable income. Most children never leave that bracket.
Why the Kiddie Tax Does Not Apply to Wages
The kiddie tax stops parents from shifting investment income to kids. It taxes a child’s unearned income above $2,700 at the parent’s rate. Unearned income includes interest, dividends, and capital gains.
Wages are earned income. They are always taxed at your child’s own rate, no matter how old they are. The kiddie tax generally applies to children under 18, and to full time students under 24 who do not provide more than half of their own support. You can read the full rules in IRS Topic 553.
When Your Child Must File a Tax Return
A dependent child must file a federal return for 2026 if earned income is more than $16,100. Your child should also file if any federal income tax was withheld. That is the only way to get the withholding back.
Payroll Tax Rules by Business Structure
Your business type decides whether you save on payroll taxes. The IRS family employee rules are clear on this point.
| Business Structure | Social Security and Medicare (FICA) | Federal Unemployment (FUTA) | Wages Deductible? |
|---|---|---|---|
| Sole proprietorship | Exempt if child is under 18 | Exempt if child is under 21 | Yes |
| Single member LLC (disregarded entity) | Exempt if child is under 18 | Exempt if child is under 21 | Yes |
| Partnership owned only by the child’s parents | Exempt if child is under 18 | Exempt if child is under 21 | Yes |
| Partnership with non parent partners | Taxable | Taxable | Yes |
| S corporation | Taxable | Taxable | Yes |
| C corporation | Taxable | Taxable | Yes |
Sole Proprietorship and Single Member LLC
This is the best setup for hiring your kids. The IRS treats a single member LLC taxed as a disregarded entity the same as a sole proprietor for family employment. Wages to a child under 18 carry no FICA tax. Wages to a child under 21 carry no FUTA tax. Your child keeps their full paycheck, and you skip the employer share.
Partnership Owned Only by the Parents
A husband and wife LLC taxed as a partnership can use the same exemptions. The key is that every partner must be a parent of the child. If a sibling, friend, or investor is also a partner, the exemptions are lost.
S Corporation and C Corporation
Corporations do not get the payroll tax break. Your child’s wages are subject to FICA and FUTA like any other employee. The wages are still deductible, and your child still uses their own standard deduction. So hiring your kids can still beat paying their costs with after tax money. The savings are just smaller.
If you are weighing a change in business structure, our incorporation service team can help you compare the tax trade offs.
A 2026 Example With Real Numbers
Say you run a sole proprietorship in Delray Beach. Your net profit is $130,000 and you are in the 24% federal bracket. You hire your 16 year old to handle filing, scanning, social media posts, and front desk help. You pay them $16,000 for the year. Your child has no other income.
| Item | Result |
|---|---|
| Your federal income tax saved (24% of $16,000) | $3,840 |
| Your self-employment tax saved ($16,000 x 92.35% x 15.3%) | About $2,261 |
| Your child’s taxable income ($16,000 minus $16,100 deduction) | $0 |
| Your child’s federal income tax | $0 |
| FICA and FUTA on your child’s wages | $0 |
| Estimated total family tax savings | About $6,101 |
Your self-employment tax savings include the full 12.4% Social Security portion. That is because your profit is below the 2026 wage base of $184,500. If your profit were above that level, you would only save the 2.9% Medicare portion.
Two things to keep in mind:
- The QBI deduction. If you claim the 20% qualified business income deduction, paying wages lowers your QBI. Your real income tax savings will be a little less than the figure above.
- The hours must match the pay. At $15 an hour, $16,000 equals about 1,067 hours. That is close to 20 hours a week all year. If your teen is only working summers, the pay should reflect that.
Retirement Savings for Your Child
Earned income opens the door to an IRA. Your child can contribute up to $7,500 in 2026 or their total earned income, whichever is less. This is where hiring your kids can pay off for decades.
Roth IRA vs Traditional IRA
A traditional IRA gives your child a deduction now. Combined with the standard deduction, a child could earn $23,600 in 2026 ($16,100 plus $7,500) and owe no federal income tax.
But most kids pay little or no tax today, so the deduction is often worth very little. Take a child who earns $20,000. Their taxable income is $3,900 and their tax is $390. A $7,500 traditional IRA contribution saves only that $390.
A Roth IRA is often the better choice. Your child pays no tax on contributions today because they are already in the 0% or 10% range. The money then grows tax free for 40 or 50 years. Qualified withdrawals in retirement are also tax free.
| Feature | Roth IRA | Traditional IRA |
|---|---|---|
| Tax break now | No | Yes, a deduction |
| Tax on qualified withdrawals | None | Taxed as income |
| Best for | Kids in the 0% or 10% bracket | Kids with income above the standard deduction |
| 2026 limit | $7,500 or earned income, if less | $7,500 or earned income, if less |
Gifting the IRA Contribution
Many teens want to spend their paycheck, not save it. That is fine. A parent or grandparent can gift the money for the IRA instead. The only rule is that the total contribution cannot exceed the child’s earned income for the year. Your child keeps their wages, and the IRA still gets funded.
What About Trump Accounts?
The OBBBA created Trump Accounts, a new savings account for children under 18. Contributions began on July 4, 2026, with a $5,000 yearly cap. Employers can add up to $2,500 per employee each year through a written contribution program.
There is a catch for business owners. Proposed IRS rules released in August 2026 generally block sole proprietors, partners, and more than 2% S corporation owners from using this employer benefit for their own children. The rules are not final yet, so check with a tax professional before you rely on it.
IRS Rules for Hiring Your Child the Right Way
The IRS looks closely at family payroll. To keep your deduction safe, follow these rules.
- The work must be real. Your child must do tasks your business actually needs.
- The pay must be reasonable. Pay what you would pay an unrelated worker for the same job.
- The work must fit your child’s age. A 7 year old cannot do bookkeeping. A 16 year old can help with data entry.
- Pay by check or direct deposit. Put the money in an account in your child’s name. Do not pay in cash.
- Keep time records. Log dates, hours, and tasks. Timesheets are your best defense in an audit.
- Treat them like any employee. Use the same payroll process you use for other staff.
Our payroll service can set up family payroll the right way from day one.
Age Appropriate Jobs for Kids
| Age Range | Sample Tasks |
|---|---|
| Under 10 | Modeling for ads, photos for social media, simple cleaning, stuffing envelopes |
| 10 to 13 | Filing, shredding, organizing supplies, light cleaning, product packaging |
| 14 to 15 | Data entry, scanning documents, answering phones, social media posts |
| 16 to 17 | Front desk work, customer service, basic bookkeeping help, website updates, inventory |
| 18 and up | Office management, marketing, sales support, client intake, payroll help |
For a tax office, a teen can scan client documents, schedule appointments, and greet walk in clients during filing season. These are real tasks with real value.
Child Labor Laws, Minimum Wage, and Florida Rules
Tax rules are only half the picture. Labor laws apply too.
Federal rules. Under the Fair Labor Standards Act, parents can employ their own children under 16 in a business the parents fully own. The work cannot be in mining, manufacturing, or any hazardous job. Hazardous jobs stay off limits for all minors.
Florida rules. Florida has its own child labor law with hour and job limits for minors. Some rules differ when a child works for a parent. Check the current state rules before you set a schedule.
Minimum wage. Florida’s minimum wage is $14 per hour and rises to $15 on September 30, 2026. Paying at least the going rate helps prove your wages are reasonable. It also protects you from wage claims.
Paperwork and Payroll Checklist
Even if no payroll tax is due, you still need proper records. Here is what to have in place.
- A written job description with duties and pay rate
- Form W-4 for federal withholding
- Form I-9 to confirm work eligibility
- Timesheets or a time tracking app
- Pay stubs for each pay period
- Form W-2 issued by January 31 of the following year
- Proof of payment, such as bank deposit records
- A separate bank account in your child’s name
Clean records also make tax time easier. Our bookkeeping service can keep family payroll organized all year.
Common Mistakes That Trigger IRS Scrutiny
The Tax Court has denied this deduction many times when parents could not prove the work was real. Avoid these errors.
- Paying too much. A 12 year old earning $30,000 to file papers will draw attention.
- No time records. Without logs, the IRS may treat the wages as a gift.
- Paying in cash. Cash payments are hard to prove.
- Using the money for family costs. The wages belong to your child. Do not deposit them back into your own account.
- Claiming the exemption in the wrong entity. S corporations and C corporations must withhold and pay FICA.
- Skipping the W-2. Wages must be reported, even when no tax is withheld.
If the IRS disallows the deduction, you may owe back taxes, interest, and penalties. Learn more about what happens if you underpay the IRS.
Get Help From Nexus United Inc.
Hiring your children can save your family thousands of dollars each year. It also teaches your kids money skills and a strong work ethic. But the savings only hold up when the setup is done right.
The team at Nexus United Inc. helps business owners in Delray Beach and across Palm Beach County plan family payroll, set fair wages, and keep audit ready records. Whether you need consulting and advisory services or full accounting support, we are here to help. Call us at (855) 639 8740 or contact us today.
Frequently Asked Questions
How much can I pay my child tax free in 2026?
Your child can earn up to $16,100 in wages in 2026 with no federal income tax. With a $7,500 traditional IRA contribution, that amount rises to $23,600. The pay must still be reasonable for the work done.
Is there a minimum age to hire my child?
The IRS sets no minimum age. The work just has to be real and suitable for your child’s age. Young children often help with modeling for ads or simple cleaning tasks.
Do I have to pay Social Security and Medicare taxes on my child’s wages?
Not if your child is under 18 and your business is a sole proprietorship, a single member LLC, or a partnership owned only by the parents. S corporations and C corporations must pay these taxes. Once your child turns 18, FICA applies.
Does the kiddie tax apply to wages from my business?
No. The kiddie tax only applies to unearned income, such as interest and dividends, above $2,700 in 2026. Wages are earned income and are taxed at your child’s own rate.
Can I still claim my child as a dependent if I pay them?
Yes, in most cases. Your child must still meet the dependency tests, including not providing more than half of their own support. Paying a fair wage for part time work rarely changes this.
Do I need to give my child a W-2?
Yes. You must issue a Form W-2 by January 31 for wages paid the prior year. This applies even if no payroll tax was withheld.
Can my S corporation get the same tax break?
Only partly. The wages are still deductible, and your child still uses their own standard deduction. But an S corporation must pay FICA and FUTA on the wages, so the savings are smaller.
Should my child open a Roth IRA or a traditional IRA?
A Roth IRA is usually better for kids. Most children pay little or no tax today, so a deduction is worth little. A Roth lets the money grow tax free for decades.
Can I pay my child for chores at home?
No. Household chores are personal, not business work. Only tasks that help your business can be paid as deductible wages.
What records should I keep when I hire my child?
Keep a job description, timesheets, pay stubs, a Form W-2, and bank records showing each payment. Good records are your best protection if the IRS asks questions.
