Last updated: February 2026
Yes. When you hire your child to perform legitimate work for your business, their wages are a deductible business expense. This is true regardless of your business structure, whether you're a sole proprietor, LLC, S Corp, or C Corp.
The deduction works just like any other employee wage deduction. You pay your child for real work, you document the hours and tasks, and you deduct the total wages from your business income. This reduces your taxable income, which means you pay less in taxes.
But there's a catch that trips up a lot of business owners: the work has to be real, the pay has to be reasonable, and the documentation has to exist.
How the Deduction Works
When you pay your child $12,000 for a year's worth of part-time work in your business, that $12,000 comes off your business income as an ordinary and necessary business expense under IRC Section 162. If you're in the 24% tax bracket, that deduction saves you $2,880 in federal income tax alone.
On your child's side, they report the $12,000 as earned income on their own tax return. But because the standard deduction in 2026 is $16,100, they owe zero federal income tax on that amount. See: How Much Can I Pay My Child Tax-Free in 2026?
The result: your family keeps the money, you get a business deduction, and your child pays no tax. Use our Tax Savings Calculator to run your specific numbers.
The Three Requirements
1. The Work Must Be Real
Your child has to perform actual tasks that benefit your business. Filing documents, organizing inventory, shredding papers, assisting with data entry, cleaning the office, helping with social media content, or packaging materials are all legitimate examples. What doesn't count: paying your child for household chores, homework, or tasks unrelated to your business. For a full list of qualifying tasks, see: 50+ Legitimate Tasks You Can Pay Your Kids (By Age).
2. The Pay Must Be Reasonable
"Reasonable compensation" means you're paying your child what you'd pay someone else to do the same work. You can't pay your 8-year-old $50 an hour to organize papers. Research local rates for similar tasks and pay accordingly. For younger children doing simple work, $8 to $12 per hour is typically reasonable depending on your area. Older teens doing more skilled work might reasonably earn $15 to $20 per hour. Read the full guide: How Much Should I Pay My Child? Reasonable Wage Guide.
3. You Must Document Everything
You need time records showing when your child worked and what they did, a written job description, payment records (bank transfers, not cash), and evidence that the wage is reasonable. For the complete documentation checklist, read: What Records to Keep for the IRS.
What About Payroll Taxes?
The wage deduction is available to every business structure. But the payroll tax savings depend on how your business is set up. Sole proprietors and single-member LLC owners don't pay FICA or FUTA taxes on wages to children under 18 (FUTA exemption extends to age 21). S Corp and C Corp owners pay standard payroll taxes unless they route employment through a Family Management Company.
Either way, the income tax deduction for the wages applies across the board. For a deeper look at how entity type affects these benefits, read: Sole Prop vs S Corp: Which Is Better for Paying Your Kids?
Can I Deduct More Than the Standard Deduction Amount?
Yes. There's no rule that says you can only pay your child up to $16,100. You can pay them more if the work justifies it. However, any amount above the standard deduction will be subject to income tax on your child's return (at their rate, which is likely much lower than yours). For most families, keeping wages at or below the standard deduction amount makes the most sense because it maximizes the tax-free benefit.
Frequently Asked Questions
Can I deduct wages paid to my child even if they're under 10?
Yes, as long as the work is real and age-appropriate. The IRS has accepted that children as young as seven can be legitimate employees. The key is that the tasks make sense for the child's age.
Do I need to issue a W-2 for my child?
Generally yes. Your child should receive a W-2 at year end, even if no taxes were withheld. Your CPA can handle this as part of your normal year-end payroll processing. See the full Kids Payroll Checklist for W-4, W-2, and other filing requirements.
What if my child works only during summer break?
That's fine. Many business owners hire their children seasonally. The deduction applies to whatever wages are paid during the year, regardless of the schedule.
Can I pay my child a salary instead of hourly?
Hourly is generally safer because it creates a clear connection between time worked and compensation. A salary arrangement for a minor can be harder to justify as reasonable.
Disclaimer: This article is for educational purposes only and does not constitute tax or legal advice. Consult a qualified CPA or tax professional for guidance specific to your situation.