Last updated: January 2026
If you're a business owner considering hiring your kids, you're probably wondering: how much can they earn without paying taxes?
The short answer for 2026: up to $16,100 in federal income tax-free (the standard deduction amount).
But there's more to the story. Depending on your business structure, you might also avoid payroll taxes, potentially saving your family thousands more.
Here's the complete breakdown.
The Standard Deduction: Your Child's Tax-Free Threshold
Every taxpayer, including children, gets a standard deduction. For 2026, it's $16,100 for single filers.
This means your child can earn up to $16,100 and owe zero federal income tax.
Example:
- Your child earns $16,100 working for your business
- Standard deduction: $16,100
- Taxable income: $0
- Federal income tax owed: $0
If your child earns more than $16,100, only the amount above that threshold is taxed, and it's taxed at their rate (10% on the first portion of taxable income), not yours.
Payroll Taxes: Where the Real Savings Are
Income tax is just one piece. Payroll taxes are where business owners can save even more depending on their business structure.
Payroll Taxes Explained
When you hire an employee, you typically pay:
- Social Security tax: 6.2% employer + 6.2% employee = 12.4% total
- Medicare tax: 1.45% employer + 1.45% employee = 2.9% total
- FUTA (federal unemployment): 0.6% employer only on the first $7,000
Combined, that's 15.3% in FICA taxes alone split between employer and employee.
When You Can Avoid Payroll Taxes
If your business is a sole proprietorship or a spousal partnership (including single-member LLCs and husband-wife LLCs), and your child is under 18, you don't have to pay or withhold:
- Social Security tax
- Medicare tax
- FUTA (until age 21)
That's 15.3% in savings on every dollar you pay them.
Example: You pay your 16-year-old $16,100.
Payroll tax savings: $16,100 × 15.3% = $2,463
This Exemption Does NOT Apply If:
- Your business is an S-Corp or C-Corp
- Your LLC has elected S-Corp taxation
- Your partnership includes non-parent partners
In those cases, you must withhold and pay payroll taxes like any other employee.
The Complete Tax Picture for 2026
Let's put it all together for a sole proprietor or spousal partnership with a child under 18:
| If Your Child Earns | Income Tax | Payroll Tax | Total Tax |
|---|---|---|---|
| $5,000 | $0 | $0 | $0 |
| $10,000 | $0 | $0 | $0 |
| $16,100 | $0 | $0 | $0 |
| $20,000 | ~$390 | $0 | ~$390 |
Your child can earn $16,100 completely tax-free. Above that, they pay a small amount of income tax but still no payroll taxes if under 18 and you qualify.
Compare That to What YOU Would Pay
On that same $16,100, if you're in the 24% bracket:
- Income tax: $3,864
- Self-employment tax (15.3%): $2,463
- Total: $6,327
By paying your child instead of keeping the income yourself, your family saves over $6,000 in taxes on $16,100.
What If My Business Is an S-Corp?
If you have an S-Corporation, the FICA exemption doesn't apply. Your child will be subject to payroll taxes like any other employee.
However, you still benefit from:
- A business deduction for wages paid
- Shifting income to your child's lower tax bracket
- Creating earned income for Roth IRA contributions
The math isn't as favorable, but it can still make sense. Work with your CPA to run the numbers for your specific situation.
How Much Should I Actually Pay?
Just because your child can earn $16,100 tax-free doesn't mean you should pay them that much.
The IRS requires wages to be reasonable for the work performed. Factors that matter:
- Your child's age
- The complexity of tasks
- Hours actually worked
- What you'd pay a non-family member
Examples:
- A 10-year-old working 5 hours/week at $10/hour = $2,600/year ✓
- A 16-year-old working 15 hours/week at $15/hour = $11,700/year ✓
- A 7-year-old earning $16,100 for "helping out" = raises red flags ✗
Document the work performed and keep it reasonable.
Beyond Tax-Free: The Roth IRA Bonus
Here's where it gets even better: your child's earned income makes them eligible to contribute to a Roth IRA.
In 2026, they can contribute up to $7,500 or their total earned income, whichever is less.
That money grows tax-free and comes out tax-free in retirement. A child who contributes $7,500/year from ages 14-18 could have over $1 million by age 65, assuming average market returns.
State Taxes: Don't Forget
This article focuses on federal taxes. Your state may have:
- Its own income tax (some states have none)
- Its own standard deduction amount
- Different rules for family employment
Check your state's requirements or ask your CPA.
Summary: 2026 Tax-Free Limits
| Scenario | Tax-Free Amount | Payroll Tax Exempt? |
|---|---|---|
| Sole proprietorship, child under 18 | $16,100 | Yes |
| Spousal partnership, child under 18 | $16,100 | Yes |
| S-Corp or C-Corp, any age | $16,100 | No |
| Partnership with non-parent partners | $16,100 | No |
| Child age 18+ | $16,100 | No (FICA applies) |
How Kids Payroll Helps
Kids Payroll automatically calculates your child's earnings and shows you:
- Year-to-date pay
- How close they are to the standard deduction
- Roth IRA contribution room
- Projected annual earnings
Frequently Asked Questions
Can I pay each of my kids $16,100?
Yes. The standard deduction applies per person. If you have three kids doing legitimate work, each can earn up to $16,100 tax-free. That's $48,300 shifted out of your income.
What if my child has other income?
The $16,100 standard deduction covers all income, not just from your business. If your child also has a summer job earning $3,000, their total tax-free threshold is still $16,100.
Do I have to withhold income tax from my child's pay?
If your child will owe no tax (earning under the standard deduction), they can claim exemption from withholding.
Can I pay my child more than $16,100?
Yes, but the amount above $16,100 will be subject to income tax at your child's rate. Still a lower rate than you'd pay.
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.