Note that this article is for educational and entertainment purposes only. This is not financial or tax advice. Always check with your own advisors about your specific situation.
When I saw little Rumi Carter on stage during Beyoncé’s Cowboy Carter tour, my first thought was, good job getting those kids on the summer payroll!
If you have a family business, it’s a time-honored tradition to give the kids some experience. But if you’re not a famous stage family, at what age and wage is it worth hiring your kids?
While I’m not on tour in spangles, as a business-owning mom, I get my kiddo involved, too. We started out with a small wage for tasks like shredding paper, opening mail, and prepping boxes (so, so much tape), but have evolved quickly to using agentic AI to create fun content and images, editing videos, and even getting a fee for appearing (with consent) in my company marketing materials.
And while my kiddo gets real experience and I get funny stories about child labor, the effort of putting my kiddo on payroll opens up some interesting tax and wealth strategies.
Ready to hire your kids? Read on.
Hiring Your Kids
The IRS says you can benefit from hiring your kids up to age 21 as long as they can do meaningful work. Meaningful work is relative, but typically by age 6 when they can read, sort things, and lift stuff. (You and your accountant can debate whether your muscle-bound preschool genius qualifies.) You can also hire your grandkids or parents!
Some ways to get your kids involved in meaningful work:
- Appearing on social media or in your marketing materials qualifies for a name, image, and likeness (NIL) agreement. Image work can be done by much younger children.
- Creating visual assets in Canva or Adobe
- Recording and editing videos
- Researching your online presence and how you show up in AI results
- Generating marketing ideas
- Managing your social media presence
While your state may have limitations on the minimum age at which kids can work in your company, the NIL workaround is a strong option and may be something you’re doing anyway.
And the tax and wealth benefits?
Beyond the life skills, hiring your kids has tax benefits, particularly if you’ve begun to ascend the progressive income tax structure. In my California-based business, the top state and federal tax rates add up to almost 55%. If I had an LLC or sole proprietorship, for every additional $1 I make in regular income, I keep 45 cents. Oof.
Kids’ earned income is counted separately from yours. They get their own 2025 standard deduction of $15,000, which means they pay $0 in federal income taxes on the first $15,000 they earn. That means for every dollar you pay your kid, they keep the whole dollar.
You can see how this starts to get interesting as you have more taxable household income. And if one of your goals for owning a business is to build intergenerational wealth, the options to start your kids’ retirement savings early in life are even more intriguing. See the Advanced Options section below for tips on using Roth IRAs for wealth-building.
The Ground Rules
Here’s where to start.
- Profitability: You should be profitable. If not, this can get dicey with the IRS. You and your accountant can agree to the audit line.
- Registrations: You need an EIN (federal business tax ID) and a proper setup as an employer in your state / city. It’s free to file for an EIN directly with the IRS. State registrations typically have a small fee if you DIY through the secretary of state, a little higher if you use a human-supported legal service like CorpNet. If any of this makes you nervous, invest in help. (Disclosure: I get a referral fee from CorpNet should you purchase services via this link. Thanks for supporting my writing!)
- Employment: You need to properly hire your child as a W-2 employee and withhold income tax. If you’re incorporated, you’ll also withhold and pay payroll taxes.
- Workers Comp: You may waive the workers compensation insurance requirement in most states if your dependent is covered by your family health insurance. (Single parents, tread carefully. Your kid must be on YOUR health insurance.)
- Tax Filing: In 2025, W-2 wages up to $15,000 can be filed on a parent’s tax return, offsetting your child’s allowed $15,000 standard deduction.
- Meaningful Work and Reasonable Wage: Your child has to do some type of meaningful and necessary work for a reasonable wage.
- Bookkeeping: Kid wages are wages, and wages are qualified business expenses. Make sure you record wages and payroll tax line items in your financial reports.
It’s a great idea to talk about this with your tax professional BEFORE you do it. They may advise adjusting the target wage based on your state tax requirements.
Advanced Options
Upon learning they have a lucrative kid job, your offspring might be eager to load up on Robux and Labubus. Before you hand over the cash, consider that this earned income can go into a qualified retirement account.
- Up to $7,000 of 2025 earned income can be contributed to a traditional IRA or Roth IRA.
- Roth IRA contributions are taxed now and grow without any future tax obligations. While you might not meet the qualifying income thresholds, your kids making under $15,000 sure do, and their tax rate is effectively 0%.
- Qualified retirement savings are disregarded on FAFSA, the federal student aid evaluation. Roth IRA growth can be accessed for qualified college tuition without penalty.
- Roth IRAs have no minimum required distribution during the holder’s lifetime, so your young child could let this money grow for 70-80 years.
Roth IRAs are pretty cool. Here’s why:
- Whatever amount that account grows in the future remains tax-free and you can choose pretty much any stock, bond, ETF, mutual fund, or REIT you want.
- If you need the original $7,000 in the future, it’s available without tax or penalty for any reason.
- The money can be accessed penalty-free for many life events like college tuition, medical expenses, first-time home purchases, or births or adoptions.
- If you leave the money alone, it can stay invested for life. Use the Rule of 72 to see how much that $7,000 could grow. (The linked video illustrates the math.)
All this to say, you don’t have to organize a glitzy summer world tour in order to get your kids on the payroll and start building future wealth.
If you have questions about how your kids fit into your business growth plan, grab a free 20-minute Strategy Session with me.
