How Much Can You Save by Hiring Your Kids?
If you own a business and your kids are old enough to do real work, you may be able to pay them a wage that’s fully deductible to your business — and fully or mostly tax-free to them. For many owners, that’s thousands of dollars in tax savings per child, every year.
Use the free estimator below to get a ballpark in about 30 seconds — no signup required. It’s a simplified projection based on your child’s job role, hours, and your tax bracket. (The full PaprikaTax system goes much deeper: 800+ job roles, wage data for your state and county, and guidance toward higher documented savings.)
How the Tax Savings Work
The strategy rests on three pieces of ordinary tax law working together:
1. Wages you pay your child are a business deduction. Just like wages to any employee, compensation for legitimate work reduces your business’s taxable income. If you’re in the 24% federal bracket, every $1,000 in wages saves roughly $240 in federal income tax — before state tax savings and, for sole proprietors, potential self-employment tax savings on top.
2. Your child’s standard deduction shields the wages from income tax.
For 2026, the standard deduction is $16,100 for a single filer. A child whose only income is wages from your business can earn up to that amount and owe zero federal income tax. You deducted it; they don’t pay tax on it. The income didn’t disappear from the family — the tax on it did.
3. Kids under 18 can be exempt from payroll taxes.
When a child under 18 works for a parent’s sole proprietorship — or a partnership where both partners are the child’s parents — their wages are exempt from Social Security and Medicare taxes. Under 21, wages are also exempt from federal unemployment tax (FUTA). That’s another 6% on the first $7,000 the family keeps compared to paying an outside worker.
A Real-World Example
Say you run a sole proprietorship, you’re in the 35% federal bracket, and your 15-year-old handles your social media, photographs products, and organizes customer files — real work you’d otherwise do yourself or pay someone for.
You pay her $12,000 for the year at an hourly rate anchored to published wage data for that kind of work in your area — not a number you made up.
Your business deducts $12,000, saving roughly $2,880 in federal income tax — plus self-employment tax savings and any state income tax savings on top.
She owes $0 in federal income tax, because $12,000 is under her standard deduction.
No Social Security or Medicare tax is withheld or owed, because she’s under 18 working for her parent’s sole proprietorship.
The money stays in the family, funds her savings or a Roth IRA, and she builds a documented work history.
Who qualifies
Business structure matters.
The payroll tax exemption applies to sole proprietorships and to partnerships owned entirely by the child’s parents. If your business is an S corporation or C corporation, the income tax savings still work, but the corporation must withhold Social Security and Medicare like any employer. (There are structures that address this — it’s one of the things we cover in a strategy session.)
The payment must actually happen.
Real payroll, real transfers into an account in the child’s name, on a regular schedule — not a journal entry at year-end.
The work must be real.
Your child must perform actual, age-appropriate services your business genuinely needs: filing, cleaning, modeling for marketing photos, social media, data entry, deliveries, customer follow-up. “Being my kid” is not a job description the IRS accepts.
The wage must be reasonable.
Pay what you’d pay an unrelated person for the same work. $75/hour for shredding paper invites scrutiny; a rate anchored to published occupational wage data is defensible. This is a core part of how PaprikaTax works: we tie your child’s wage to real wage data for the specific role in your state and county, so the rate isn’t a guess — it’s documented.
Will this trigger an audit?
Hiring your children is explicitly recognized in the tax code and in IRS guidance — it is not a loophole or a gray-area scheme. What gets people in trouble is sloppy execution: no timesheets, no job description, round-number wages paid once in December, money that never actually reaches the child.
That’s the problem PaprikaTax exists to solve. Documentation is the strategy. Our packages include the workpapers, time tracking, job descriptions, and payment records that make the deduction stand up — assembled by a CPA, not a template.
How PaprikaTax works
1. Answer a few questions about your business and your kids.
2. We build your file — opinion letter, workpapers, job descriptions, and payroll setup guidance.
3. Your kid gets paid — and you keep audit-ready records all year with our built-in time tracker.
Frequently asked questions
If you can’t find your answer, reach out to support@paprikatax.com
How old does my child have to be?
There’s no statutory minimum age, but the work must be genuine and age-appropriate, and courts have allowed deductions for children as young as seven in the right circumstances. Most families implementing this strategy have kids in the 8–17 range. The under-18 payroll tax exemption is what makes the years before 18 especially valuable.
How much can I pay my child tax-free in 2026?
Up to $16,100 in wages is shielded from federal income tax by the 2026 standard deduction, assuming wages are your child’s only income. You can pay more than that — the wages just need to be reasonable for the work — but amounts above the standard deduction start generating income tax at your child’s (low) rates.
Do I need to run actual payroll?
Yes — this is where most DIY attempts fall apart. Depending on your structure you may not need to withhold Social Security and Medicare, but you still need to pay on a regular schedule, keep records, and file the applicable forms (such as a W-2). Our done-with-you package walks you through your first payroll run.
Does this work if my business is an S-corp?
The deduction and your child’s standard deduction still work, so the income tax savings are real — but the S-corp must withhold payroll taxes on your child’s wages. Whether the strategy still pencils out, and whether an alternative structure makes sense, depends on your numbers. Run the estimator and we’ll show you.
Can my child put the money in a Roth IRA?
Yes — earned income is exactly what makes a child eligible to contribute to a Roth IRA, up to the annual contribution limit or their earned income, whichever is less. Decades of tax-free compounding starting in childhood is one of the most powerful side effects of this strategy.
How accurate is the free estimator?
It’s a deliberately simplified projection for educational purposes: it uses one job role (from four examples), federal brackets only (no state income taxes), and assumes your child has no other income. It also runs a quick eligibility check to flag situations where the strategy may not fit. Your real number — built from 800+ roles, your state and county wage data, and your actual facts — comes from the full PaprikaTax system. Think of the estimator as the ballpark and the paid engagement as the blueprint.
What documentation do I need?
At minimum: a written job description, a time log of hours actually worked, evidence of a reasonable wage rate, proof of payment into the child’s account, and the required payroll filings. Every PaprikaTax package includes all of it — plus a time tracker your kid actually uses.