Hiring your children or adult dependents into your business is one of the smartest financial moves you can make. But many parents worry:
“Am I going to mess this up? Payroll sounds complicated.”
The truth: with a few straightforward steps — and a little PaprikaTax magic — you’ll have a clean, compliant setup that feels no harder than signing them up for summer camp.
1. Start Like Any Employer: Normal HR Procedures
Treat your dependent’s job the same way you would a stranger’s:
• Job Description: Write down what they’ll do (even if it’s a blend of social media, filing, and research). This proves the role is real. For more ideas see: 🌶️The PaprikaTax Guide: What Work Can the Kids Do? (A Long List)
• Offer Letter (optional): A short note spelling out hours, pay rate, and start date. This is more about good documentation than red tape.
• Personnel File: Keep a folder (digital or paper) with job description, tax forms, and time records.
2. Payroll Setup — Easier Than It Sounds
• Get them on payroll. We like the Gusto Payroll (no affiliation). Run payments through your business bank account just like other employees.
• Time tracking is recommended. You need something to substantiate the amount of time that your dependents are working. Simple timesheets are enough, e.g. a Google or Excel sheet with date, amount of hours, and description of the task, is sufficient.
• Paycheck or Transfer: You can transfer money to their account or the family checking, write a check, or even give them a debit card tied to your account — no law requires a separate checking account.
đź’ˇ PaprikaTax Tip: We help you assign the right job categories like instead of admin maybe its social media or research (higher paying gigs so generally more tax savings). Using PaprikaTax is super fast: www.PaprikaTax.com
3. Tax Forms & Withholding
• W-4: Even for your child, you’ll want a W-4 in the file. They can usually claim exemption from withholding if they don’t expect to owe taxes.
• W-2: At year end, you’ll issue them a W-2 just like any other employee.
• Payroll Taxes: If you’re a sole proprietorship or a partnership owned only by parents, wages paid to your under-18 kids are exempt from Social Security and Medicare tax. That’s a big win!
• I-9: Every employee must complete Form I-9, even if they’re your child. This form confirms the employee’s identity and eligibility to work in the United States.
4. Contractor Option (When It Fits)
Sometimes you’ll hire an older child or dependent as a contractor instead of an employee. For example:
• They design a logo.
• They build a website.
• They do a one-time photography project.
In that case:
• No W-2 → instead, you’ll file a 1099-NEC at year end if you paid $600 or more.
• They invoice you for the work.
• Still pay them from the business account and keep documentation.
Check the employee vs. subcontractor rules (or contact us with questions). Here’s a link to the IRS rules: https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee
5. Recording the Payments
• All payments must come through the business.
• Never pay “under the table.” It’s not worth it plus its typically not tax advantageous to pay your dependents this way.
• Record payments in QuickBooks, Gusto, or even a spreadsheet — just make sure it’s clear and traceable.
6. Documentation = Protection
IRS examiners love paper trails. The more you keep, the stronger your case. With the development of AI, it will be much easier for the IRS to audit and there no statute of limitations if they suspect fraud.
• Job description
• Time sheets
• Pay stubs or transfer records
• Year-end W-2 or 1099
• Market rate support (that’s where PaprikaTax shines 💡)
7. Why PaprikaTax Makes It Easy
The PaprikaTax App:
• Guides you step-by-step through setup.
• Suggests job descriptions broken into components (social media, research, admin, etc.).
• Helps assign market-based wages and adds premiums for a variety of variables like company size and non-participation in certain company benefits.
• Generates compliant documentation (timesheets, pay records, year-end reporting) so you have some protection incase of an audit.
• Ensures you’re maximizing deductions without stress.
âś… The Big Picture
Hiring your dependents:
• Saves taxes.
• Builds their skills and confidence.
• Keeps more money in the family through tax savings.
And when you follow the simple HR + payroll steps above, it feels easy — because it really is.
With PaprikaTax, you don’t just “pay your kids” — you document smartly, maximize savings, and stay 100% compliant.
🌶️ Bottom line: Paying your kids through your business isn’t complicated. It’s just a matter of following the same steps as any employer, keeping good records, and letting PaprikaTax handle the heavy lifting.
– Written by David Nagy, CPA, PaprikaTax.com
PAPRIKA stands for “Parents Allocate Payroll Rationally Increasing Kids’ Assets”
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