Hiring Your Kids in the Business: The Tax Rules and the Work Rules

Plenty of trade businesses are family businesses, and sooner or later the owner’s kid is sweeping the shop, hauling brush or answering the office email. The question that follows is a fair one: can I pay my teenager through the business, and what does that do to my taxes?

Yes, you can, and federal tax law gives a parent’s own business a real break on it. But two rule books apply at once. The IRS decides which payroll taxes are due. The Department of Labor decides what work a minor may do. They draw their lines in different places, and the way your business is set up decides where you land under each.

The tax side: what a parent’s business does not pay

IRS Publication 15, the employer’s tax guide, puts the rule in section 3, “Family Employees,” and the IRS’s “Family Help” page says the same:

• Social Security and Medicare. Pay to a child under 18 who works for a parent in a trade or business is not subject to these taxes if the business is a sole proprietorship, or a partnership in which each partner is a parent of the child.
• Federal unemployment tax (FUTA). Pay to a child under 21 who works for a parent is not subject to FUTA.
• Federal income tax withholding. It generally still applies, at any age. An employee who had no federal income tax liability last year and expects none this year may claim exemption from withholding on Form W-4, and that claim lasts one calendar year; a new form is due by February 15 to keep it.

For scale, the 2026 rates in the same publication: Social Security is 6.2% from the employee and 6.2% from the employer, Medicare is 1.45% from each, and FUTA is 6.0% of the first $7,000 of each worker’s pay, or 0.6% after the full credit for state unemployment tax. For a child who qualifies, none of it is due, on either side.

The business types that lose the break

Publication 15 is just as plain about where the exemption stops. A child’s pay is subject to income tax withholding and to Social Security, Medicare and FUTA taxes when the child works for a corporation, even one the parent controls; for a partnership, unless each partner is a parent of the child; or for an estate. In those cases, the IRS says, the child works for the corporation, partnership or estate, not for you.

Two common setups need a closer look.

A one-owner LLC. For income tax, an LLC with one member is disregarded as separate from its owner unless it elects to be treated as a corporation. For employment taxes such an LLC is generally treated as a corporation, but the regulations carve out the family rules: for the Social Security, Medicare and FUTA family exceptions, the owner is treated as the employer (26 CFR 31.3121(b)(3)-1(d) and 31.3306(c)(5)-1(d)). So a one-owner LLC that has not elected corporate treatment keeps the break.

An S corporation, or an LLC taxed as one. An LLC can elect to be treated as a corporation, and a qualifying LLC can elect S corporation status. Once it does, it is a corporation for these rules, and your child’s pay is taxed like anyone else’s, even though you own all of it.

Real work at a real wage

The break applies to wages, and wages have to hold up. Publication 334 says that to deduct an employee’s pay on Schedule C, the pay must be an ordinary and necessary expense and must meet two tests: it must be reasonable, and it must be for services performed. In practice that means paying your child for work you would otherwise pay someone to do, at about what you would pay that someone, and keeping the same records you keep for any helper: dates, hours, tasks and pay, paid by check or transfer.

The paperwork is an ordinary hire’s, per Publication 15: a Form W-4, a Form I-9 to verify the right to work in the United States, your state’s new-hire report, and a Form W-2 at year end.

A worked example

Say a landscaper runs his business alone as a sole proprietorship, and his 15-year-old works 400 hours over the summer at $15 an hour, the rate the landscaper pays any first-season helper. That is $6,000 in wages. Here is what is due on it, compared with the same pay from the same parent’s S corporation:

The last line is the same in both columns because of the child’s own standard deduction. For 2026, the standard deduction of someone who can be claimed as a dependent cannot exceed the greater of $1,350 or earned income plus $450, and the full single standard deduction is $16,100 (Revenue Procedure 2025-32). For this child that limit works out to $6,450, more than the $6,000 he earned. State unemployment tax is left out of the table; your state sets it.

On the parent’s side, the $6,000 is a Schedule C expense if it passes the two tests, so it lowers the profit that both his income tax and his self-employment tax are figured on. The IRS puts the self-employment tax rate at 15.3%, figured on Schedule SE.

The work side: the parental exemption

Federal child labor law has its own family rule. Under 29 CFR 570.2(a)(2), the minimum ages of the Fair Labor Standards Act do not apply to a parent employing his or her own child, except in manufacturing and mining and in occupations the Secretary of Labor has declared hazardous. The Labor Department’s Fact Sheet #43 puts it this way: children of any age are generally permitted to work for businesses entirely owned by their parents, but those under 16 may not be employed in mining or manufacturing, and no one under 18 may be employed in an occupation declared hazardous.

The Wage and Hour Division’s Field Operations Handbook (chapter 33, section 33e00) adds two details. The hours standards that bind other 14- and 15-year-olds, how long and at what times of day they may work, do not apply to a child under 16 employed by a business the parent owns. And the exemption applies only when the parent is the child’s sole employer: if the parent is a partner or a corporate officer, it does not apply unless the parents are the only partners or the sole owners of the corporation.

Set that beside the tax rule and the two lines fall in different places:

What no parent may assign a child under 18

The exemption stops at the Hazardous Occupations Orders in Subpart E of Part 570, and several of them read like a list of trade work: all work on or about a roof, gutters included (570.67); chain saws, wood chippers and most power saws (570.65); power woodworking tools, which the rule says include portable nailers and staplers (570.55); driving on public roads, with a narrow exception for some 17-year-olds (570.52); cranes, hoists and high-lift trucks (570.58); and excavation and trench work beyond narrow exceptions such as hand digging no deeper than four feet (570.68).

Back to the landscaper: under federal law his 15-year-old can rake, bag and haul brush by hand on his father’s jobs, at hours a neighbor’s 15-year-old could not work. He cannot run the chain saw or the chipper, and he cannot drive the truck to the next yard. What each order covers, task by task, and the age-by-age rules for teens who are not your own children, hour limits included, are in Summer Help Under 18: What Teens Can and Cannot Do on Your Jobs.

Your state gets a vote

Fact Sheet #43 says that when both federal and state laws apply, the stricter standard must be obeyed, and that federal law does not require work permits, though many states do. State unemployment tax and workers’ comp follow state rules, which may not mirror the federal family exemptions. Before the first paycheck, read your state labor department’s page on employing minors, and ask your payroll provider or tax preparer how your state treats a family employee.

The short checklist

• Find your business in the ownership table before you count on the tax break.
• Pay a reasonable wage for real work, by check or transfer, with a time record.
• Do the paperwork of any hire: W-4, I-9, the state new-hire report, and a W-2 at year end.
• Keep every child under 18 off the hazardous list, whoever owns the business.
• Read your state’s rules before the first shift, not after.

General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.