The “Hire Your Kid” Rule: Pay Your Child $15,000 From the Family Business and Neither of You Owes the IRS a Dime

1 hour ago 1

Michael Williams

Wed, July 29, 2026 astatine 11:32 AM CDT 5 min read

Quick Read

Pay your kid up to $16,100 from your sole proprietorship successful 2026, and neither of you owes national income taxation oregon payroll taxation connected those wages.
S-corp and C-corp owners suffer the FICA exemption entirely, owing the afloat 15.3% payroll tax, portion lone sole props and parent-only partnerships suffice for it.
Those earned wages unlock Roth IRA eligibility for your child, letting them commencement decades of tax-free compounding maturation from an aboriginal age.
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If you tally a household concern arsenic a sole proprietorship oregon a spouse-only partnership, the taxation codification lets you determination up to $16,100 onto your insignificant child's W-2 successful 2026 and legally portion each dollar of national income taxation and payroll taxation disconnected the top. Pay your kid $15,000 to bash existent enactment successful the business, and neither of you owes the IRS a dime connected those wages. The strategy is called the "hire your kid" rule, and it hides successful plain show wrong 2 sections of the taxation codification astir concern owners ne'er read.

An big pistillate and a younger pistillate idiosyncratic beryllium side-by-side astatine a woody table adjacent a sunlit window. The woman, with a lukewarm smile, points to a papers she holds, portion the younger idiosyncratic diligently writes successful a notebook with a pen. A metallic laptop, a calculator, a ceramic piggy bank, and a tiny potted works are arranged connected the desk, suggesting a productive and acquisition fiscal readying session.

The Buried Benefit

Here is however the mathematics works. Wages you wage your kid are a deductible concern expense, truthful the wealth leaves your Schedule C earlier self-employment taxation and income taxation interaction it. On your child's side, earned income up to the single-filer modular deduction, $16,100 for taxation twelvemonth 2026, wipes retired national income taxation entirely. And if your kid is nether 18 and you run arsenic a sole prop oregon a concern owned lone by the child's parents, the wages are besides exempt from Social Security, Medicare, and national unemployment tax. You displacement income from your bracket to your kid's zero bracket, and payroll taxation ne'er enters the picture.

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Where the Rule Actually Lives

The FICA exemption sits successful IRC Section 3121(b)(3)(A), which excludes from "employment" immoderate work performed by a kid nether 18 successful the employment of a parent. The FUTA (unemployment) exemption for children nether 21 sits successful IRC Section 3306(c)(5). The wage deduction connected your broadside runs done IRC Section 162 arsenic an mean and indispensable concern expense, truthful agelong arsenic the wage is tenable for the work. The modular deduction fig comes from the IRS 2026 ostentation adjustments nether Revenue Procedure 2025-32, updated by the One, Big, Beautiful Bill signed into instrumentality successful 2025.

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