Frequently Asked Questions

Savings vary widely based on income, business type, number of children, and applicable rules. Some families save thousands; others see more modest benefits. Our goal is not to promise a number, but to design the most defensible strategy for your situation.

Yes – when done correctly. Hiring your children has long been permitted, but wages, roles, and labor rules must be handled properly. That’s what we help you get right.

Tools and AI can generate numbers, but they can’t weigh conflicting rules, sign a CPA opinion letter, or stand behind a strategy. Small details often change the outcome.

No. Many clients use PaprikaTax alongside their CPA. We focus specifically on hiring your kids and maximizing the related tax savings.

That’s common. Every submission is reviewed by a tax advisor, and live support is available if you want deeper guidance.

In some cases, a compliant approach may not reduce total tax — or may even increase it. Our role is to help you understand the tradeoffs and identify additional tax strategies that, when implemented alongside dependent compensation, often lead to meaningful savings.

There’s a big difference between being flagged for an audit and actually being out of compliance.

• Audit flags happen when something looks unusual — for example, paying a dependent a very high salary relative to their age or role. That doesn’t mean you’ve done anything wrong, but it may prompt the IRS to take a closer look.
• Non-compliance, on the other hand, occurs when the wages can’t be substantiated — such as when there are no time logs, job descriptions, or evidence that the work was necessary and actually performed.

A high wage can draw scrutiny but still be perfectly valid if it’s well-documented. A low wage might fly under the radar — but without proper records, it could be disallowed entirely in an audit.

Treat it like any other hire: real work, market pay, clean records.

Do this:

• Document the job: role, duties (age-appropriate), start date, supervisor.
• Track time & output: keep timesheets and simple work proofs (files, photos, checklists).
• Pay through payroll: use your business bank account, issue pay stubs, and file W-2s at year-end.
• Set a reasonable wage: align pay with market rates for the work performed.
• Keep proof of payment: avoid cash/peer-to-peer; payroll or ACH/check with records is best.
• Make it real work: no paying for routine household chores or school tasks.
• Don’t disguise gifts as wages: bonuses must still be tied to work.

How PaprikaTax helps:

We provide a defensible wage range, & job description & timesheet templates (in our Blog), and a payroll checklist (also in our Blog) so your setup is consistent, documented, and audit-ready.

The short answer is: sometimes yes, sometimes no — but it’s simpler than you think.

A dependent can file their own tax return even while being claimed on your return.

In practice, most dependents only need to file if they:

• Had significant earnings, or
• Had taxes withheld from their paycheck and want a refund.

For example, if your child made $4,000 helping with your business and no taxes were withheld, they probably don’t have to file — but if you withheld a small amount, filing will likely get that refund back.

Yes—if they do real work at a reasonable wage and you run actual payroll. The tax treatment depends on your business type:

Tax treatment by entity type

Sole proprietorship or single-member LLC (disregarded):

• Wages to your child under 18: no FICA (no Social Security/Medicare).
• Wages to your child under 21: no FUTA.
• Still issue a W-2, keep timesheets, and follow normal payroll steps.

Partnership where each partner is a parent of the child:

• Same relief as above (no FICA <18, no FUTA <21).

S-corp, C-corp, multi-member LLC, or partnership with any non-parent partner:

• FICA and FUTA apply like any other employee.

What you must do (regardless of entity)

• Document real, age-appropriate duties and hours; pay a reasonable market rate.
• Run pay through your business payroll (not cash/Venmo): W-4, pay stubs, W-2 at year-end.
• Register and comply with state payroll rules and child labor limits.

Note: State rules vary. This is general federal guidance; confirm specifics for your situation.

Yes—almost always. If your child works in your business and you direct what they do, they’re an employee, and you should run payroll and issue a Form W-2 at year-end.

Special family-employee perks (sole prop or single-member LLC):

• Wages to your child under 18: no FICA (Social Security/Medicare).
• Wages to your child under 21: no FUTA.

(You still keep timesheets, pay through payroll, and issue a W-2.)

When would a 1099 ever apply? (rare)

Only if your child is a bona fide independent contractor, meaning they:

• Control how and when the work is done (not you),
• Provide their own tools/equipment,
• Have a profit/loss risk and offer services to multiple clients,
• Are engaged in an independent trade or business.

If—and only if—those facts are truly met, you would issue Form 1099-NEC (for $600+ in a year) by Jan 31. Note: they’d then owe self-employment tax, and you’d lose the family-employee FICA/FUTA relief.

Bottom line: Don’t use a 1099 to “avoid payroll.” Misclassification risks taxes, penalties, and interest. Running proper payroll with a W-2 is usually the right—and safest—path.

Rarely. Only if your child is a bona fide independent contractor, meaning they:

• Control how and when the work is done (not you),
• Provide their own tools/equipment,
• Have a profit/loss risk and offer services to multiple clients,
• Are engaged in an independent trade or business.

If—and only if—those facts are truly met, you would issue Form 1099-NEC (for $600+ in a year) by Jan 31. Note: they’d then owe self-employment tax, and you’d lose the family-employee FICA/FUTA relief.

Bottom line: Don’t use a 1099 to “avoid payroll.” Misclassification risks taxes, penalties, and interest. Running proper payroll with a W-2 is usually the right—and safest—path.

There is no IRS or Department of Labor rule requiring a child to have their own bank account.

Employers can issue a paycheck to the child, and the parent can deposit it wherever they choose.

That said, best practice is to either:

• Pay the child via direct deposit into an account with the child’s name on it (individual or joint with a parent), or
• Issue a paper check payable to the child, which the parent can endorse for deposit.

Under federal law (FLSA), parents can employ their own children of any age in their business, and most child labor restrictions don’t apply.

But there are two big carve-outs:

• Hazardous Jobs are always off-limits.
• Some states don’t fully follow the federal exemption.

Maybe. Many states exempt a parent’s sole proprietorship employing their own child, but rules vary by state and entity type.

You may need coverage if:

• Your business is an LLC, S-corp, or C-corp (even if family-owned).
• You have other employees or exceed a state headcount threshold.
• Your state requires WC regardless of relationship or for certain industries.
• The work is hazardous or involves minors, which can trigger stricter rules.
• A client/landlord requires a certificate of insurance.

Why consider coverage even if exempt?

Without WC, an injury can still create out-of-pocket liability; WC provides medical/wage benefits and employer liability protection. A broker can quote a low-minimum “voluntary” policy.

What to do:

• Check your state’s workers’ comp agency site or call your insurance broker.
• Confirm rules for your entity type and headcount.
• Document your determination (exempt or covered) for audit/readiness.

How PaprikaTax helps: We provide a state checklist, flag entity-based triggers, and prep a broker talk-track so you can decide quickly.

Yes. You can save your progress at any time and return whenever it’s convenient. Feel free to start now and explore the intake at your own pace.

Yes. You can generate a secure link to share your in-progress intake with a spouse, tax advisor, or other trusted collaborator so you can complete it together.

Yes. You can pause at any point, save your work, email questions and upgrade to Done-With-You if you have not already done so. If you’ve already made a payment, it will be credited toward the Done-With-You offering – so you won’t pay extra.