Last updated: January 2026
The IRS requires "reasonable compensation." Here's exactly what that means, with real hourly rates by task and age.
One of the biggest mistakes parents make when hiring their kids isn't paying them. It's paying them too much.
The IRS allows you to deduct wages you pay your children as a business expense. But if your 8-year-old is "earning" $50/hour to shred documents, you're asking for trouble.
Reasonable compensation means paying what you'd pay any other worker for the same job. Here's how to get it right.
The Reasonable Compensation Rule
The IRS doesn't publish a list of approved rates. Instead, they apply a simple test:
Would you pay a non-family member the same amount for the same work?
If you'd pay a neighborhood teenager $15/hour to help with filing, that's what you should pay your child. If the going rate for a social media manager in your area is $25/hour, and your 16-year-old is doing that job, $25/hour is reasonable.
Start with your state minimum wage as the floor. Even though family employment has some exemptions from minimum wage laws, paying at least minimum wage strengthens your documentation and eliminates one potential red flag. If your state minimum is $15/hour, don't pay $8/hour, even for simple tasks.
What's NOT reasonable:
- Paying below state minimum wage
- Paying $30/hour for sweeping floors
- Paying inflated rates just to shift more income to your child
- Paying for time not actually worked
2026 Wage Guidelines by Task
These ranges reflect actual market rates. Always pay at least your state's minimum wage (check your state, as many are now $14-17/hour). Document how you arrived at your rate by checking job boards, local listings, or temp agency rates.
Need ideas for what tasks to assign? See our complete list of 50+ legitimate tasks by age.
Basic Tasks (Ages 5-10)
| Task | Reasonable Rate |
|---|---|
| Shredding documents | State min - $15/hr |
| Sorting and organizing | State min - $15/hr |
| Putting on labels/stamps | State min - $15/hr |
| Appearing in marketing photos | $50-150/session |
| Simple cleaning (office, not home) | State min - $16/hr |
| Inventory sorting | State min - $16/hr |
Intermediate Tasks (Ages 10-14)
| Task | Reasonable Rate |
|---|---|
| Filing and data entry | State min - $18/hr |
| Basic customer service | State min - $18/hr |
| Packing and shipping | State min - $18/hr |
| Social media posting (basic) | State min - $20/hr |
| Research and summarizing | State min - $20/hr |
| Product photography (basic) | $17-22/hr |
Skilled Tasks (Ages 14-17)
| Task | Reasonable Rate |
|---|---|
| Graphic design | $18-30/hr |
| Video editing | $18-35/hr |
| Website updates | $18-30/hr |
| Bookkeeping assistance | $17-25/hr |
| Customer service (phone/email) | $16-22/hr |
| Content writing | $18-35/hr |
| Social media management | $18-30/hr |
| Project coordination | $17-25/hr |
How to Document Your Rate
If the IRS ever questions your child's wages, you'll need to show how you determined the rate. Here's what to keep:
- Comparable job listings - Screenshot 2-3 Indeed/LinkedIn posts for similar work in your area
- Temp agency quotes - Call a staffing agency and ask what they charge for the role
- Industry data - Sites like Glassdoor, PayScale, or Bureau of Labor Statistics
- Written rationale - A simple note explaining: "Paid $15/hr for filing based on [source] showing range of $14-18 for administrative assistants in [city]."
Keep this documentation with your tax records. You probably won't need it, but if you do, you'll be glad you have it. Learn more about what records to keep for the IRS.
How Much Can They Earn Total?
For 2026, your child can earn up to $16,100 (the standard deduction) without owing any federal income tax.
If you're a sole proprietor or single-member LLC, and your child is under 18, you also avoid:
- Social Security tax (6.2%)
- Medicare tax (1.45%)
- Federal unemployment tax (FUTA)
This means you can pay your child up to $16,100, deduct it from your business income, and they pay $0 in federal taxes. The money stays in the family, and you reduce your tax bill.
Example:
You're in the 24% tax bracket. You pay your 14-year-old $12,000 for legitimate work over the year.
- Your tax savings: $12,000 x 24% = $2,880
- Their tax bill: $0 (under standard deduction)
- FICA savings (if sole prop): $12,000 x 15.3% = $1,836
- Total family savings: $4,716
Use our Tax Savings Calculator to run your own numbers.
Don't Overpay, But Don't Underpay Either
Some parents are so worried about IRS scrutiny that they drastically underpay their kids. That's a mistake too.
If your 16-year-old is doing skilled video editing that would cost you $25/hour from a freelancer, pay them $25/hour. Underpaying to "be safe" just leaves tax savings on the table.
The goal is market rate for the actual work performed, no more, no less.
Red Flags the IRS Looks For
Avoid these patterns that trigger scrutiny:
- Round numbers with no time records - Paying exactly $15,000 with no timesheets
- Rates far above market - $40/hour for basic tasks
- No documentation - No records of what work was done
- Work that doesn't match the business - A law firm paying a 7-year-old for "consulting"
- Dramatic increases - Jumping from $3,000 to $15,000 year over year with no explanation
Quick Reference: Maximum Hours at Different Rates
To stay under the $16,100 standard deduction in 2026:
| Hourly Rate | Max Hours/Year | Hours/Week (50 weeks) |
|---|---|---|
| $10/hr | 1,610 hours | 32 hrs/week |
| $12/hr | 1,341 hours | 27 hrs/week |
| $15/hr | 1,073 hours | 21 hrs/week |
| $18/hr | 894 hours | 18 hrs/week |
| $20/hr | 805 hours | 16 hrs/week |
| $25/hr | 644 hours | 13 hrs/week |
The Bottom Line
Pay market rate. Document everything. Stay under the standard deduction if possible.
Once your child has earned income, consider opening a Roth IRA to help them start building tax-free wealth for the future.
Kids Payroll helps you track hours, calculate wages, and generate the records you need to prove reasonable compensation, automatically. See how we compare to traditional payroll software.