Your teenager has been helping you photograph products, organize files, or update your website. You’re proud of the work, and you want to pay them fairly. You may have heard that hiring your child can save thousands in taxes.

There is a real opportunity here. But when I look at it through your LIFT – Legal, Insurance, Financial & Tax™ framework, I start with the job and the person doing it, not a promised deduction. Your child’s age and your business’s tax structure change the answer.

November gives you time to ask the right questions before year-end payroll closes. Here’s how to make the arrangement useful for your business and meaningful for your child, without building it around a tax rule that does not apply to you.

Hiring Your Child Starts With Work, Not a Dollar Target

You built a business that needs things done. Start there. What work can your child actually perform, what is it worth, and who will supervise it?

A teenager sorting inventory or editing product photos has a different assignment from a younger child appearing in an advertisement. Neither job should be invented after you decide how much money you want to deduct. The pay needs to reflect actual services and reasonable compensation.

Suppose, purely for illustration, your teenager does 40 hours of appropriate work at a supportable local rate of $20 an hour. That is $800 in wages. It is not permission to pay $8,000.

Keep a job description, time or project records, evidence of the finished work, and proof of payment. For advertising work, document the engagement, actual use of the images, and how you established reasonable pay. Being your child does not make ordinary family chores business work.

Check labor rules before the assignment starts. Federal law has exceptions for certain parent-owned businesses, but hazardous work remains restricted, and state rules can be stricter. A payroll-tax exception is not permission to ignore work permits, school-hour restrictions, or safety requirements.

The bottom line: Build the job around work your business needs and your child can lawfully do.

Age 18 Is the Birthday That Changes the Bigger Tax Break

You may have heard that paying your child avoids payroll taxes until age 21. That combines two different rules and makes the smaller benefit sound like the larger one.

In a parent’s sole proprietorship, or a partnership where every partner is a parent of the child, qualifying wages for services performed before age 18 are exempt from Social Security and Medicare taxes. These are commonly called FICA taxes. The family-employment exception is in Internal Revenue Code §3121(b)(3)(A).

A separate rule, §3306(c)(5), exempts qualifying wages for services performed before age 21 from federal unemployment tax, or FUTA. Turning 18 does not end that particular exception, but it does change the Social Security and Medicare treatment. Have payroll review a birthday during the year rather than applying one rule to every paycheck.

Here is a simplified comparison using $16,100 of wages entirely within each age category. That is the 2026 standard deduction for a single filer, so a child with no other income generally owes no federal income tax on those wages. At these wages, combined employer and employee Social Security and Medicare taxes ordinarily total 15.3%, or $2,463. That is the combined amount, not a $2,463 saving for the business alone.

Federal unemployment tax, assuming the full state unemployment tax credit and no credit reduction, is 0.6% on the first $7,000, or $42. Under those assumptions, the two federal exceptions together represent $2,505 for a qualifying child under 18. At age 19, the remaining federal unemployment exception represents $42, not $2,505.

This is not a complete tax-savings calculation. It excludes state taxes; unemployment credits and employer circumstances can change the result. Federal income-tax withholding rules still apply, although an employee who qualifies can claim exemption on Form W-4.

Reasonable wages for actual work are generally deductible to the business, and your child’s wages may be taxed at their lower rate. Your tax professional can run the actual numbers.

The bottom line: Under 18 and under 21 refer to different taxes, not interchangeable promises.

Your S Corporation Does Not Get the Same Family Exception

The business paying the wages is not always you personally. If your S corporation employs your child, the family exemptions described above do not apply merely because you own the company.

That is also true for a C corporation, even when parents control it. A partnership with a partner who is not the child’s parent does not qualify for those parent-child exceptions either. The relationship must fit the rule for the actual employer.

A single-member LLC needs a more careful answer. When it is disregarded for federal income-tax purposes, special employment-tax rules can preserve qualifying family exemptions by treating the owner as the employer for those exceptions. An LLC taxed as an S corporation is different; the letters “LLC” alone do not tell you the answer.

Before payroll begins, ask your tax professional to identify the entity’s actual tax classification and confirm which exceptions apply. Discuss the business purpose and tax treatment before creating a second company or routing wages through another entity.

The absence of an exemption does not make hiring your child a bad decision. Your business still receives work, your child gains experience, and legitimate compensation can create opportunities to save. The arrangement should make sense even after you calculate the taxes correctly.

The bottom line: Confirm who employs your child before calculating any family payroll-tax exemption.

The Longer-Term Opportunity Is What Your Child Does With the Pay

The first paycheck can be more than spending money. It gives you a chance to talk about earning, saving, and what your child wants money to make possible.

Eligible compensation can support a Roth individual retirement account, or Roth IRA. Contributions are not deductible, but qualified withdrawals are tax-free. The opportunity is not limited to children whose wages qualify for a family payroll-tax exemption.

For 2026, the IRA contribution limit for someone under 50 is $7,500, or their eligible compensation if lower, subject to other rules including Roth income limits. If your child earns $800 and has no other eligible compensation, the contribution ceiling is $800, not $7,500. Contributions to traditional and Roth IRAs share the annual limit.

You can help provide the contribution money, but a parent’s gift does not create earned income. Keep the wages and any separate gift clearly documented, and ask the account provider about the appropriate custodial arrangement for a minor.

For a teenager, decades of tax-free growth can outrun every tax number in this article. Even when no payroll exemption applies, paying your child for real work can still be worth it.

Let your child participate in the choice. Saving part of the paycheck while keeping part for a goal they care about teaches more than opening an account they never hear about again. The account belongs to your child, and the conversation should respect that.

The bottom line: Pay them for work they actually do, at what it is actually worth, then consider funding a Roth IRA. This year’s tax savings can be a small part of the opportunity.

Make Your Business Support the Same Decision

As a LIFTed Business Advisor, I look at how the arrangement affects your business and your family together. Your accountant, payroll provider, insurance professional, and I each see different parts of it. These are the connections to check before the first payment.

Legal

Define the job, reasonable pay, permitted duties, and required records. Check federal and state employment rules rather than assuming a family relationship removes them. If your child handles client information or creates business content, address confidentiality and ownership of that work too.

Insurance

Ask your insurance professional how employing a minor affects workers’ compensation requirements and coverage for the work and location involved. Do not assume your current policy covers the arrangement simply because your child already visits the office.

Financial

Budget for wages, payroll costs, supervision, and training. Consider your TEAM: Time, Energy, Attention, and Money. A role that costs you ten hours of supervision for two hours of useful work needs an honest business reason, not just a tax explanation.

Tax

Have your tax professional and payroll provider confirm entity classification, age-based exceptions, withholding, reporting, and payment timing. Do not backdate records or turn a year of undocumented family help into an invented payroll history.

The bottom line: A useful family job connects legal compliance, insurance, business finances, and tax treatment.

LIFT Business Breakthrough Session: What You Can Do Right Now

Write down one real job your child could do, their age, and your business’s tax classification. Bring those facts to a planning conversation before choosing a wage amount or promising a tax result.

As a Personal Family Lawyer firm and LIFTed Business Advisor, I help you identify how the legal structure fits with your financial goals and the questions your tax and insurance professionals need to answer. The aim is a workable arrangement for your business and your child.

This article is a service of Ganvir Law, a Personal Family Lawyer firm and LIFTed Business Advisor. I offer a complete spectrum of legal services for businesses and can help you make wise choices for your business throughout life and in the event of your death. I also offer a LIFT Business Breakthrough Session, which includes a review of the legal, insurance, financial, and tax systems supporting your business. Call our office today to schedule.

The content is sourced from Personal Family Lawyer for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.