Put the kids on payroll: real jobs, real paychecks, real savings

Who this is for

• Sole proprietorships, or partnerships where every partner is the child’s parent:²
  • Child under 18: wages aren’t subject to Social Security and Medicare.¹
  • Child under 21: wages aren’t subject to FUTA.
• S corps, C corps, or a partnership with a non-parent partner: a child’s wages carry regular FICA and FUTA. The wage deduction and the Roth angle can still work.
• Income tax withholding rules apply at any age.

The 2026 numbers

• Dependent standard deduction: the greater of $1,350 or earned income + $450, up to the single standard deduction of $16,100.³
• IRA limit: $7,500. A Roth contribution can’t exceed the child’s taxable compensation for the year.⁴
• FUTA wage base: $7,000.

How to do it right

1. Real, age-appropriate work. Filing, cleaning the shop, social media, packing orders, data entry. Write a short job description.
2. Reasonable pay. Pay what you’d pay an unrelated person for the same task. Save a comp or two.
3. Timesheets. Log dates, hours, and tasks every pay period.
4. Run real payroll. Collect a Form W-4 and Form I-9, pay from the business account to an account in the child’s name, and issue a W-2 at year-end.
5. Follow your state’s rules on hours and tasks for minors. Where a state rule is stricter than the federal one, the state rule applies.
6. Fund the Roth (optional). Your child, or you as custodian, can contribute up to their earned income, within the $7,500 limit.

Kids on payroll fill out their own W-4. Our W-4 guide for owners and family covers when a child can claim exempt.

Run it by your CPA

Ask your CPA to check entity type, pay level, and the Roth setup. It’s usually a quick yes or a small tweak.

Every business is a little different, so check with your CPA for your situation. Good CPAs are on your team, and they love an owner who shows up with the homework done.

More from Dad’s tax playbook

• When the S-corp election pays off: Payroll tax saved minus the cost of running an S corp. The two-column math and Form 2553 timing.
• Put your spouse on payroll: Social Security credit in their name, their own 401(k) deferrals, and the QJV option.
• S-corp owner health insurance: W-2 Box 1 only, then Form 7206. One payroll setting, one form.
• The accountable plan: Get paid back for miles, phone and home office without it counting as wages.
• The Augusta rule: Rent your home to your company for real meetings, fewer than 15 days a year.
• The Solo 401(k): Two hats, two contributions: 2026 limits, deadlines and the S-corp angle.
• Work Opportunity Tax Credit: watch this space: Lapsed for 2026 hires so far. Where it stands, and the playbook if Congress revives it.
• PTET: let your business pay the state tax: How pass-through entity tax elections work around the personal SALT cap.
• Dial in your W-4: Step 2(c), Step 3 and Step 4(c) for owners, spouses and kids on payroll.
• S-corp reasonable salary by profession: pay ranges for 15 professions, the IRS factors and a one-page salary memo.

Payroll Dad is a cartoon run by a real small family business. This is general education, not tax advice for your situation.