Can I Put My Child on Payroll in My Small Business? Yes—But Read This First
“Can I put my child on payroll?”
If you’re a small business owner asking that, you’re not alone—and the short answer is yes, you can! But (and it’s a big but) only if you follow the right rules.
Putting your kids on payroll can be a smart, strategic move: it gives them real-world work experience, provides your business with a legitimate, tax-deductible expense, and creates potential tax savings for your family overall. But like anything with the IRS, there are details you must get right.
In this post, we’re diving into what’s allowed, what you need to watch for, and how to stay compliant. So, before you start cutting that paycheck to your teen or tween, read on!
Your Kids Must Actually Work
The first, most important rule when asking can I put my child on payroll is: they must be doing real work.
This isn’t a loophole to hand out “free” money or invent make-believe jobs. You need to treat your child like any other employee, meaning:
They must perform legitimate tasks that contribute to the business.
You should document their job duties, hours worked, and pay.
Their work should be appropriate to their age and abilities.
For younger kids, tasks like stuffing mailers, organizing inventory, or cleaning the office might be appropriate. For teens, social media help, data entry, or website updates could be fair game.
The work they do should match the skill level you’d expect from someone their age. And yes, it helps if you have written job descriptions or even simple timesheets showing when they worked and what they did. That’s what the IRS would look for if questions ever came up.
Wages Must Be Reasonable
You might be thinking, “Great! I’ll just pay my kid $30,000 and write it all off!”
Hold on. The IRS expects reasonable wages—meaning what you’d pay a non-family member for the same work. If you wouldn’t pay someone else’s 12-year-old $50 an hour to sweep the shop floor, you shouldn’t pay your own that, either.
Here’s where things can go sideways:
Overpaying your child to create an artificial deduction.
Paying for tasks they aren’t actually doing.
Issuing paychecks but then immediately taking the money back for family expenses (nope—that’s not how this works).
To stay compliant, look at fair market rates. If you’d pay a part-time assistant $15/hour to do social media posts, then paying your teenage daughter the same is generally fine. But bumping her up to $60/hour? That’s going to raise eyebrows.
Remember, the IRS has seen every trick in the book. Keeping your child’s pay aligned with fair wages keeps your deductions legitimate and helps you sleep at night.
Your Business Type Matters
Another key factor when figuring out can I put my child on payroll is knowing how your business is structured.
If you’re a sole proprietor (or married filing jointly with your spouse as a Schedule C business), there’s good news:
You don’t need to withhold or pay Social Security or Medicare taxes for your kids under 18.
You do need to report the wages on your business’s tax return, but it’s generally simpler from a payroll perspective.
But if your business is set up as an S-Corp, C-Corp, or an LLC taxed as a corporation, it’s a different story:
You do need to run your child’s pay through full payroll, with all the usual withholdings (Social Security, Medicare, and FUTA taxes).
Why? Because once your business is a separate legal entity, the IRS treats the employment relationship just like they would for any other worker. You can’t skip payroll taxes, even if it’s your own child.
So, before you start, make sure you understand your entity type and how it affects your payroll obligations. This is where chatting with a tax professional can save you from costly mistakes.
Filing Thresholds for Kids
Here’s where things get even more interesting.
If you keep your child’s annual wages under the standard deduction, which is $15,000 for 2025, they likely won’t owe federal income tax, and they may not even need to file a tax return.
Let’s break this down:
Pay your child $12,000 for the year? No problem—no income tax owed, no return required.
Pay your child $18,000 for the year? Now you’ve crossed the standard deduction, and they’ll need to file a tax return.
It’s important to note: this doesn’t apply to payroll taxes. Even if your child owes no income tax, if your business structure requires payroll taxes (like an S-Corp), you still need to withhold and remit those.
For most families, staying under the standard deduction makes things simpler and keeps more money in your child’s pocket. But if you do need or want to pay them more, just make sure you’re filing everything correctly.
Why This Can Be a Win-Win
When done right, paying your kids through your business offers multiple benefits:
Tax savings: The wages you pay are a deductible business expense, lowering your taxable income.
Future savings: Your child can put their earned income into a Roth IRA, setting them up for long-term financial growth.
Real-world learning: Kids gain experience in working, saving, and understanding money—lessons they don’t always get in school.
Family wealth building: Rather than paying taxes on profits, you’re shifting wealth within the family unit, all while staying compliant.
It’s not just about cutting a check—it’s about creating opportunity, teaching responsibility, and strengthening your family’s financial foundation.
Ready to Put This Into Action?
Putting your kids on payroll can be a fantastic move—if you do it by the book. It can create meaningful tax advantages, help your kids develop valuable skills, and set your family up for greater financial success.
But the rules can get tricky, especially when it comes to payroll taxes, filing thresholds, and reasonable compensation. Don’t go it alone or risk triggering an IRS audit.
We’re here to help.
Let’s walk through your situation together and make sure putting your child on payroll is the right fit for your family and business. Book your call with our friendly AccountAbility tax team today—we’ll help you make sure you’re maximizing the benefits without crossing any lines.
