About the Hire Your Children in the Business
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Learn everything about the Hire Your Children Strategy tax strategy for 2026. Who qualifies, how to claim it, IRS rules, limits, and common mistakes to avoid. Uncle Kam helps you maximize this deduction.
This is a powerful tax strategy available to qualifying taxpayers in 2026. Consult with a Uncle Kam tax advisor to determine if you qualify and how to maximize your savings.
Common questions about the Hire Your Children in the Business — answered by Uncle Kam's tax advisors.
The hire your children strategy allows business owners to pay their minor children wages for legitimate work performed in the business, shifting income from the parent's high tax bracket to the child's lower (or zero) tax bracket. Children under 18 working for a parent's sole proprietorship or single-member LLC are also exempt from FICA taxes. Uncle Kam structures these arrangements to maximize tax savings while maintaining full IRS compliance.
In 2026, children can earn up to the standard deduction amount ($14,600 for single filers) completely free of federal income tax. If the child contributes to a Roth IRA, they can earn an additional $7,000 tax-free (the Roth IRA contribution limit). Uncle Kam helps you determine the optimal wage amount to maximize tax-free income for your child.
There is no minimum age requirement — children of any age can be employed if they are performing legitimate work appropriate for their age. However, the FICA tax exemption only applies to children under 18. Children aged 18-21 may still benefit from income shifting even though FICA taxes apply. Uncle Kam evaluates the tax benefits at each age and adjusts the strategy accordingly.
Children can perform a wide variety of legitimate business tasks including filing, answering phones, data entry, social media management, cleaning the office, modeling for business photos, helping at trade shows, delivering materials, and many other age-appropriate tasks. The work must be genuine and the pay must be reasonable for the work performed. Uncle Kam helps identify appropriate tasks for your children's ages and your business type.
Wages must be reasonable for the work performed — you should pay your child what you would pay a non-family member for the same work. Paying a 10-year-old $50,000 per year for filing would not be reasonable. Uncle Kam helps you establish defensible wage rates based on comparable market rates for similar work.
Yes — you must withhold federal income tax from your child's wages if they earn more than their standard deduction, and you must withhold state income taxes as required by your state. For children under 18 in a sole proprietorship or single-member LLC, you do not need to withhold Social Security or Medicare taxes. Uncle Kam sets up the proper payroll procedures for your child employees.
Children under 18 employed by their parent's sole proprietorship or single-member LLC are exempt from Social Security (6.2%) and Medicare (1.45%) taxes — both the employee and employer portions. This saves 15.3% on top of the income tax savings. The exemption does not apply to corporations or partnerships where a parent is not the only partner. Uncle Kam structures your business entity to maximize the FICA exemption.
Yes — you can hire your children through an S-Corp or C-Corp, but the FICA tax exemption does not apply. You will still save income taxes by shifting income to the child's lower bracket, but both the employer and employee will owe FICA taxes. Uncle Kam analyzes whether the income tax savings outweigh the FICA cost for your specific situation.
Yes — as long as your child has earned income (wages), they can contribute up to $7,000 per year (2024 limit) to a Roth IRA. Contributions grow tax-free and qualified withdrawals in retirement are completely tax-free. This is one of the most powerful long-term wealth-building strategies available. Uncle Kam helps set up custodial Roth IRAs for your child employees.
You need a formal job description, timesheets or work logs documenting hours worked and tasks performed, payroll records showing wages paid, and W-2 forms issued at year-end. The IRS may scrutinize child employee arrangements, so documentation must be thorough. Uncle Kam provides timekeeping templates and ensures all payroll records are properly maintained.
Yes — you must issue a W-2 to your child employee just like any other employee, reporting their wages and any withholding. The child will file their own tax return reporting the W-2 income. Uncle Kam handles all W-2 preparation and filing for your child employees.
Some tax advisors recommend hiring children through a family management company (sole proprietorship) that then contracts with the operating business to avoid FICA taxes even in corporate structures. This strategy has been challenged by the IRS and courts, and Uncle Kam only recommends properly structured arrangements that can withstand scrutiny.
The kiddie tax applies to unearned income (investment income) of children under 19 (or 24 if full-time students), taxing it at the parent's rate. However, the kiddie tax does NOT apply to earned income (wages). This means wages paid to your child are taxed at the child's rate regardless of age, making the hire your children strategy effective even for older children. Uncle Kam ensures your child's income is properly classified as earned income.
Yes — you can pay your child more than the standard deduction, but amounts above the standard deduction will be subject to income tax at the child's rate. Even with income taxes, the child's rate is typically much lower than the parent's rate, creating significant tax savings. Uncle Kam models the optimal wage amount based on your tax bracket and the child's expected income.
Once wages are paid to your child, they are the child's money to spend as they choose. However, for the strategy to be most effective, Uncle Kam recommends directing wages toward Roth IRA contributions, college savings, or other long-term goals rather than discretionary spending.
Yes — wages paid to your child are fully deductible as a business expense, just like wages paid to any other employee. This deduction reduces your business income, which reduces both income taxes and self-employment taxes. Uncle Kam ensures wages are properly deducted on your business tax return.
Every dollar of wages paid to your child reduces your net self-employment income, which reduces your self-employment tax by 14.13% (the effective SE tax rate). For a sole proprietor in the 32% income tax bracket, each $1,000 paid to a child saves approximately $461 in combined income and SE taxes. Uncle Kam calculates the exact SE tax savings for your specific income level.
Yes — home-based businesses can employ children just like any other business. Children can perform tasks such as data entry, social media management, filing, answering emails, and other work appropriate for a home office environment. Uncle Kam helps home-based business owners identify legitimate tasks for their children.
The FICA exemption applies to children under 18 employed by a parent's sole proprietorship or single-member LLC. Once a child turns 18, FICA taxes apply to their wages. However, the income tax shifting benefit continues regardless of age as long as the child is in a lower tax bracket than the parent. Uncle Kam adjusts the strategy as your children age.
Wages paid to your child increase their earned income, which is assessed at a higher rate in the FAFSA financial aid formula (50% of student income above a threshold). This can reduce need-based financial aid eligibility. Uncle Kam helps you balance the tax savings from the strategy against any potential impact on college financial aid.
Uncle Kam connects you with vetted CPAs and tax advisors who specialize in the Hire Your Children in the Business and can maximize your savings.
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