Pay your kid $14,600.
Family owes $0 tax.
A sole prop or single-member LLC owned by parents can put a child under 18 on payroll, deduct every dollar against business income, and pay zero FICA — while the kid pays zero federal income tax up to the standard deduction.
The 60-second pitch
When a sole proprietor or single-member LLC owned solely by the parents employs their own child under age 18, that child's wages are exempt from Social Security and Medicare tax (FICA), exempt from federal unemployment tax (FUTA) until age 21, and fully deductible on Schedule C.
Meanwhile, the child gets a $14,600 standard deduction (2024) — bumped to $15,000 for 2025 under OBBBA. As long as the kid earns no other ordinary income, the first $14,600–$15,000 of wages is completely federal-income-tax-free.
Net effect: you shift income out of your high tax bracket (24%, 32%, 37%) and into the kid's 0% bracket — and the kid can then dump it straight into a Roth IRA (up to $7,000 in 2024/2025) for 50+ years of tax-free growth.
The $4,800 Schedule C swing
Dr. Patel owns a dental practice as a single-member LLC (Schedule C). She's in the 37% federal + 3.07% PA bracket. Her 14-year-old son Sami can already file, scan, shred records, and clean the lobby after school. She hires him for the summer + after-school shifts.
| Wages paid to Sami (700 hrs × $18.50) | $13,000 |
| FICA withheld (under 18 exemption) | $0 |
| Sami's federal income tax (under $14,600 std deduction) | $0 |
| Dr. Patel's Sch C deduction | −$13,000 |
| Federal tax saved (37%) | $4,810 |
| SE tax saved (15.3% × 92.35%) | $1,836 |
Sami can put the first $7,000 (2024 IRA limit) into a Roth IRA on his earned income — tax-free growth for ~50 years before retirement.
The step-by-step checklist
- Confirm entity type. The FICA/FUTA exemption applies only to (a) sole proprietorships and (b) partnerships/LLCs wholly owned by both parents. S-corps and C-corps do NOT qualify — the child pays full FICA. If you're an S-corp, you can still hire the kid; you just lose the FICA savings.
- Make sure the work is real and age-appropriate. Filing, shredding, social-media posting, cleaning, modeling for the website, sweeping the shop floor. A 7-year-old can model. A 14-year-old can clean. A 17-year-old can do bookkeeping data entry. The IRS test: would you have paid someone to do this task?
- Pay market rates. $40/hour for "lobby cleaning" by an 8-year-old will lose an audit. Use BLS data, your local minimum wage as a floor, and market rates as a ceiling.
- Keep timecards. Date, hours worked, task description. A spreadsheet, a Toggl log, a simple paper sheet — anything contemporaneous. This is the #1 audit defense.
- Pay through a real bank account in the kid's name. Not Venmo to mom. Not cash. Direct deposit or paper check from business checking to the kid's account. Have the kid sign a W-4.
- File a W-2 at year-end. Yes, even a 7-year-old gets a W-2. Use Gusto, QuickBooks, or any payroll service. Many offer "family employee" templates that handle the FICA/FUTA exemption automatically.
- File 941s quarterly (showing $0 FICA withheld) and FUTA Form 940 (showing $0 FUTA tax due for kids under 21). State unemployment may still apply — check your state.
- Open a Roth IRA for the kid. Custodial Roth at Fidelity, Schwab, or Vanguard. Contribute up to the lesser of earned income or $7,000 (2024) / $7,000 (2025). Tax-free growth until age 59½+.
The law — cite this in your file
- IRC §3121(b)(3)(A) FICA exemption. Services performed by a child under age 18 in the employ of a parent are not "employment" for FICA purposes — no Social Security or Medicare tax.
- IRC §3306(c)(5) FUTA exemption. Same kid, no federal unemployment tax until age 21.
- IRC §63(c) Standard deduction. $14,600 for single filers in 2024; $15,000 in 2025 (per OBBBA). Children with only earned income use the full standard deduction.
- IRC §162(a)(1) Business deduction. "Ordinary and necessary" wages paid to employees — including family — are fully deductible.
- IRC §1(g) "Kiddie Tax" Doesn't apply to wages. The kiddie tax only hits unearned income (dividends, interest). Earned income is taxed at the child's own rate — usually $0 within the standard deduction.
- Reg. §1.162-7 Reasonable compensation. Wages must be reasonable for services rendered. The IRS will recharacterize "wages" that look like a parent's allowance.
- Eller v. Comm'r (77 T.C. 934) The seven-year-old case. Court allowed deductions for a 7-year-old child's work in a parent's business with proper records. The bar is low — but documentation is non-negotiable.
Audit risk flags
- No timecards or work logs. Without contemporaneous records of what the kid did and when, you have nothing to show. Build a habit.
- Kid is too young for the claimed work. A 4-year-old "consultant." A 6-year-old "office manager." Auditors notice. Limit very young kids to modeling for marketing materials or simple tasks.
- Above-market wages. Paying a 10-year-old $50/hour to "stuff envelopes" looks like a gift. Stay near market.
- Wages used for personal expenses. If the kid's wages just refund the parent's tuition/clothing/food bill, the IRS may argue substance-over-form: it's an allowance, not wages.
- S-corp owners using the FICA exemption. Doesn't exist. The §3121(b)(3)(A) exemption is sole-prop / parent-owned-partnership only. S-corps pay full FICA on the kid's wages.
- Skipping the W-2. Cash off the books with no W-2 isn't a deduction — it's an audit time bomb. Always file the W-2.
- Hiring a kid who isn't yours. The exemption is for the parent's own child. Stepchildren of the business owner who haven't been legally adopted may not qualify.
When not to hire your kid
- You operate as an S-corp or C-corp. The FICA exemption is gone — you'll pay employer + employee FICA, eroding most of the savings.
- Your business needs cash flow more than tax savings. Wages are real cash out the door. If you're tight, defer.
- The kid genuinely can't do anything productive. Don't fabricate "work." If it's not a real job, you're committing tax fraud.
- The kid is on means-tested aid (SSI, Medicaid). W-2 earnings can disqualify a child from certain benefits. Run the math first.
- You're already at the QBI cap. If you're a specified service trade (SSTB) already losing QBI to phaseouts, the math may not pencil out as cleanly.
- You'd have to pay other (non-family) employees more by raising the kid's wage. Some states require equal pay for equal work; setting an above-market kid wage can create wage-floor problems elsewhere on the payroll.
PilePilot logs every family payroll run audit-ready.
The Books agent categorizes child wages to the right Schedule C line, surfaces the FICA exemption, and reminds you to file the W-2. Receipts and timecards live with the entries so the audit defense is one click away.
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