Guide to Hiring Your Kids for Work
Hiring your children to work—whether in a business, household tasks, or freelance-type work—can provide them with valuable skills, a sense of responsibility, and financial benefits. It can also offer tax advantages for you while helping them build savings for future goals and start down a path of financial independence.
Paying children can make them eligible to save to Roth IRA’s, which if done early can be a huge boost to their financial futures.
However, certain rules apply depending on the type of work, compensation, taxes, and documentation required. This article covers what you need to know about hiring your kids.
What Kind of Work Kids Can Do
Children can be hired for various types of work. As a general rule of thumb, if you are able to hire someone else to do the work, you can likely hire your kids to do it. Here are some common types of work kids are able to perform:
- Household Chores & Personal Services: Lawn mowing, gardening, snow removal, babysitting siblings, cleaning, organizing, or other regular tasks.
- Freelance or Odd Jobs: Pet sitting, tech support, tutoring, or assisting neighbors with small projects.
- Working in a Family Business: Administrative support, social media management, customer service, filing, packaging, product assembly, website updates, or other tasks appropriate for their age and skill level.
- Creative or Online Work: Managing a YouTube channel, graphic design, content writing, reselling goods, or editing videos.
Legal Considerations
It’s important to note that there are restrictions on the types of work children can do:
- Fair Labor Standards Act (FLSA): The U.S. Department of Labor has restrictions on children working in hazardous jobs but allows family-owned businesses more flexibility.
- State Labor Laws: Some states have additional child labor laws that regulate hours and types of work children can perform, particularly if they work for an employer other than their parents
What Should You Pay Your Kids?
The pay you set for your kids should be reasonable and appropriate for the work performed. For example, if you could hire a lawn company to mow your lawn for $30, you cannot pay your child $100 to do the same. You can pay them $10 though. 🙂
Taxes and Documentation
While you can pay your child for a variety of activities, the requirements for documentation make it more effort than it’s worth if you’re only paying them smaller amounts.
Parental and Business Tax Considerations
Hiring your Children Personally
Money paid to a child for personal or household work is not deductible on your taxes, and employment taxes do not apply.
Hiring your Children Through a Business
Hiring your children in a business offers more tax advantages as the expense becomes deductible. By reducing the parent’s taxable income and shifting some income to the child (who is likely in a lower tax bracket), you can lower overall taxes on the family income.
If your child works in your business, you must follow employment laws and documentation rules.
- Job Duties Must Be Legitimate – The work should align with their age and skills.
- Fair Market Wages – Pay them what you would pay an unrelated employee.
- Proper Record-Keeping – Keep payroll records, timesheets, and pay stubs.
- Tax Withholding – Depending on business structure, taxes may need to be withheld.
- If you operate a sole proprietorship or partnership (spouse only), wages paid to your under-18 child are not subject to Social Security or Medicare taxes (FICA).
- If under age 21, wages are not subject to federal unemployment tax (FUTA).
- If your business is structured as an S Corp, C Corp, or partnership (with non-parent partners), wages paid to your child are subject to regular payroll taxes (FICA and FUTA).
Child Tax Considerations
Payments are considered taxable income for the child and may require filing a tax return if income exceeds the standard deduction ($14,600 for 2024).
If a child earns over $400 in self-employment income (e.g., from freelancing or reselling goods), they may need to file self-employment taxes.
Documentation
To ensure compliance and tax advantages, keep thorough records of payments and work performed.
For Household Work or Odd Jobs
- Payment log: Record dates, hours worked, and amounts paid. It is best to pay the child via direct deposit as this creates a paper trail.
- Receipts: If your child is doing work for others (e.g., neighbors), receipts or invoices can be helpful.
For Work in a Family Business
- W-4 Form: Required if withholding taxes.
- Timesheets or Work Logs: To document hours worked.
- Payroll Records: If paying through a business payroll system.
- Employment Agreement: Optional but help to clarify expectations and create a more official record.
Other Tax Considerations
Excessive Pay Implications: Excessive pay would be considered a gift rather than wages.
Savings
The child can contribute earnings up to the maximum of their earnings or the contribution limits in a Roth IRA for tax-free future growth. See Latest Contribution Limits.
It’s important to note that a child only needs to have earned income to be eligible for a contribution. However, the contribution does not have to come directly from the child’s earnings; parents or other family members can fund the contribution using their own assets. For example, if you pay your child $5,000 in a year, you can also contribute $5,000 to a Roth IRA and allow the child to use the $5,000 earnings elsewhere.