Can I hire my child in my S-Corp?

Yes, but the FICA exemption does not apply. Wages to children under 18 are exempt from FICA only when paid by a sole proprietorship or qualifying partnership. In an S-Corp, the child is a regular W-2 employee with full payroll taxes.

How much can I pay my child tax-free?

Up to the standard deduction ($14,600 for 2025) with zero federal income tax. The business gets a full deduction. If under 18 in a sole proprietorship, no FICA either.

How does the Roth IRA for kids work?

Any child with earned income can contribute up to $7,000 (2025) to a Roth IRA. At 8% growth, $7,000/year for 4 years from age 14-18 becomes over $700,000 by age 65 — completely tax-free.

Paying Your Kids in the Family Business: The Right Way (and the IRS Way)

This is one of the most powerful — and most searched — tax strategies for business owners with children. Done right, you shift income from your bracket (37%+) to your child's bracket (0%), fund a Roth IRA that compounds tax-free for 50+ years, and take a full business deduction.

The Tax Mechanics

Your business gets a deduction. Wages to your child are ordinary business expenses. Pay $12,000, your taxable income drops $12,000. At 40%, that's $4,800 in savings.

Your child pays zero tax. Standard deduction for 2025: $14,600. Earnings below that = zero federal income tax.

FICA exemption (sole prop only). If your business is a sole proprietorship or qualifying partnership, wages to children under 18 are exempt from Social Security and Medicare taxes. Saves an additional 15.3%.

If your business is an S-Corp, the FICA exemption does not apply. Your child is a regular W-2 employee. The income shift still works, but the payroll tax savings don't.

The Roth IRA Math

Your child works ages 14–18, earns $7,000/year, contributes all to a Roth IRA:

Total contributions: $28,000
Growth at 8% to age 65: $744,000+
Tax on withdrawals: $0

Three-quarters of a million dollars from $28,000. Tax-free. You've given them a 50-year head start on compound growth.

What Counts as Real Work

Ages 10–13: Filing, organizing inventory, cleaning shop, shredding documents, basic data entry, taking photos for Instagram.

Ages 14–17: Above plus: answering phones, scheduling, customer follow-up, updating website/social media, entering receipts into QuickBooks, trade show assistance.

Ages 18+: Bookkeeping, customer service, marketing, warehouse management, estimating support.

Documentation That Survives an Audit

Written job description — one page, updated annually
Timesheets — weekly, filled out by the child
W-2 — filed like any other employee
Reasonable pay rate — $12–$15/hour for a 14-year-old doing filing is defensible. $50/hour is not.
Separate bank account — clean paper trail

Putting It Together

Plumbing contractor, sole prop, $350K income. Two kids (14, 16), each working ~380 hours/year at $15/hour = $5,700/year each.

Your deduction: $11,400
Tax savings at 40%: $4,560
FICA savings: $1,744
Kids' tax: $0 each
Roth contributions: $11,400/year
Projected Roth at 65 (4 years each, 8%): $1.2M+ combined

Total annual benefit: $6,300 in tax savings plus $11,400 into tax-free retirement accounts. This stacks with every other strategy in the contractor tax playbook.