You can pay a child for genuine work in your business, but the wages are not automatically tax-free. The child's age, the actual employer and ownership structure, lawful duties, reasonable compensation, withholding rules, and payment records all matter. Certain parent-business exceptions can remove Social Security, Medicare, or FUTA taxes without removing every tax or employment obligation.
This U.S. guide uses IRS and Department of Labor sources reviewed November 11, 2026. It focuses on nonagricultural work in a parent's trade or business. Household chores, farm work, other family relationships, and specialized employment arrangements need separate rules.
What makes the payment business wages rather than an allowance?
Start with work the business actually needs and the child lawfully performs. Describe the duties, the dates and hours where relevant, the agreed rate, and how completion is approved. A family allowance, personal gift, or transfer for nonexistent work should not be relabeled payroll merely to claim a tax benefit.
IRS Publication 334, under Employees' Pay, explains that deductible employee compensation must be an ordinary and necessary business expense, reasonable, and for services performed, with the applicable payment or accrual requirements. A round annual amount chosen only because someone mentioned a deduction is not evidence of the work's value.
Keep a practical basis for the pay rate, such as the actual tasks, skill, responsibilities, and comparable work. Do not assume that a child can perform every job an adult can, or that a parent's approval replaces legal age and safety restrictions.
Which federal payroll taxes can have family exceptions?
IRS Publication 15, section 3, Family Employees, distinguishes a parent's sole proprietorship or a partnership in which every partner is a parent of the child from corporations and other employers.
| Employer and age | Social Security and Medicare | FUTA | Federal income-tax withholding |
|---|---|---|---|
| Parent sole proprietor; child under 18 | Family exception applies to qualifying wages | Family exception while under 21 | Generally subject to withholding rules; consider a valid W-4 |
| Parent sole proprietor; child 18–20 | Ordinary covered-wage rules | Family exception while under 21 | Generally subject to withholding rules |
| Partnership with every partner a parent | Same under-18 family condition | Same under-21 family condition | Generally subject to withholding rules |
| Corporation, including parent-controlled | No parent-business age exception | No parent-business age exception | Ordinary withholding rules |
| Partnership with a nonparent partner | No exception based only on one parent's ownership | No exception based only on one parent's ownership | Ordinary withholding rules |
The table summarizes these specific federal family exceptions; ordinary coverage rules and any other valid exception still need review. Turning 18 changes the qualifying business-wage FICA exception; turning 21 changes the family FUTA exception. Keep age changes visible in payroll rather than applying the same setting indefinitely.
What if the business is an LLC?
Do not decide from the letters LLC alone. The tax classification, ownership, and relevant employment-tax rule matter. IRS Publication 3402 explains that a disregarded single-member LLC generally has separate employment-tax responsibilities, but the owner is treated as the employer for determining certain family-relationship employment-tax exceptions.
That is more specific than saying all LLCs are corporations or all LLCs receive the same family exception. A corporate tax election or a different ownership arrangement can change the analysis. Confirm the actual setup before configuring payroll; our LLC pay guide explains why the legal label and the tax treatment are distinct questions.
Does the child's standard deduction eliminate withholding?
Not automatically. Expected annual income-tax liability and employee withholding are related but different calculations. A claim of exemption on Form W-4 has its own prior-year and current-year conditions. Being a minor, dependent, or student does not alone establish that claim.
Use the current certificate and the child's actual circumstances, including relevant other income. Our federal withholding exemption guide explains the 2026 conditions and annual renewal. Do not promise one universal tax-free wage amount for every child.
Do family tax rules override child-labor rules?
No. The DOL child-labor exemption advisor describes a parental-business exception to certain federal nonagricultural youth-employment restrictions. It still prohibits specified manufacturing, mining, and hazardous work for younger children, and hazardous-occupation restrictions continue for older minors subject to their applicable rules.
Check the job's actual tasks, equipment, location, hours, and the child's age under both federal and applicable state requirements. Do not infer permission to use prohibited machinery from a job title such as office helper. State permits, school-related requirements, and stricter protections may require a separate review.
What should a supported wage record show?
Consider a fictional record of 10 hours of lawful business work at an illustrative $18 per hour. Gross wages are 10 × $18 = $180. This rate is an arithmetic assumption, not a statement that it meets every jurisdiction's minimum wage or is reasonable for every task.
Retain the duty record, approved hours, wage calculation, entity and ownership basis, relevant certificate, deductions, and traceable evidence of payment. Calculate net pay from the actual applicable deductions. Even if a particular tax is excluded, other deductions or state obligations may remain.
Then review required wage statements, year-end W-2 reporting, employment-tax returns or deposits, and state requirements for the specific arrangement. Do not assume that no FICA on a qualifying payment means no records or reporting. The payroll-processing guide helps organize those separate tasks.
Common family payroll questions
Can a parent-controlled S corporation use the sole-proprietor exception?
Not merely because the parent owns it. Publication 15 treats corporate employment separately, including a corporation controlled by the parent.
Is paying the child once at year-end enough?
A payment date alone does not establish lawful wages. Retain actual service, rate, timing, and payment records and meet applicable payday and tax rules.
Can ordinary chores be entered as business work?
Do not treat personal household tasks as services for the business without a genuine business basis. Household employment also has separate rules from the business examples above.