It can be frustrating when your children complain about having nothing to do — especially during the summer. So, why not hire your child or your children to work for your business? Doing so can keep them productive and teach valuable skills while potentially lowering your tax bill. However, as you probably would guess, there are important IRS rules to follow.

Here’s what you need to know.

Tax Benefits of Hiring Your Child

• If you follow IRS rules, hiring your child to work for your business can lower your taxable income as you can deduct their salaries from your business income.
• If your child is under 18, and depending on the type of business you have (more on that below) you won’t have to take Social Security and Medicare taxes from their pay.
• Your child won’t have to pay taxes if their income for a given tax year is less than the standard deduction amount for that year (e.g., $13,850 for 2023).
• Because your child will have earned income, you can contribute to an IRA on their behalf subject to applicable IRA contribution limits.

What's the 2023 Standard Deduction?

Hiring Your Child: IRS Rules

Real Work for Real Wages. If you want to save on taxes by hiring your children to work for your business, their work must be genuine and paid fairly. Your child must truly be working for your business. (You don’t want to draw IRS scrutiny by pretending your child worked for you when they didn’t.)

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