Most parents think of allowances or part-time jobs when it comes to kids earning money. But the One Big Beautiful Bill Act (OBBBA) opened up a much smarter strategy in 2025: hiring your children in your own business. Done right, it can slash your tax bill, put cash in your child’s pocket, and legally keep more money in the family.
Let’s unpack how it works, who benefits most, and what traps to avoid.
First, the Bad News
The OBBBA made permanent a change from the Tax Cuts and Jobs Act (TCJA): no more personal exemptions for dependents
August 2025 The OBBBA Increases…
. That means your child is “worthless” on your Form 1040 in terms of old-school exemptions.
But here’s the twist: with the new standard deduction of $15,750 in 2025 for single filers, your child can earn up to that amount in wages—and pay zero federal income tax.
This opens the door to a powerful family tax strategy.
👉 For IRS details, see Publication 929, which covers tax rules for children and dependents.
Why Hire Your Child in Your Business?
The Double Benefit
If you run your own business, you can pay your child a fair wage for real work. The benefits flow two ways:
- Your child’s taxes: No federal income tax on wages up to $15,750 in 2025.
- Your taxes: You deduct those wages as a business expense, lowering both income tax and self-employment tax if you’re a sole proprietor.
That means money that would have gone to the IRS stays in your household.
Example in Action
Let’s say you run a sole proprietorship and pay three kids (ages 9, 11, and 13) each $15,750 for legitimate work. That’s $47,250 total wages.
- Kids pay $0 in federal taxes.
- You deduct $47,250, cutting your taxable income and saving thousands (in one example, nearly $18,000 for someone in a 38% bracket)
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This is one of those “have your cake and eat it too” strategies.
Special Rules by Business Type
Sole Proprietors and Spouse Partnerships
This is where the magic happens. If you’re a Schedule C filer or in a partnership with your spouse:
- No FICA (Social Security and Medicare) taxes on wages paid to your under-18 kids.
- No unemployment tax on wages paid to kids under 21.
Translation: no payroll tax headaches and more money stays in the family.
Corporations and Non-Spouse Partnerships
S corporations, C corporations, and partnerships with non-spouses don’t get those payroll tax breaks. You’ll need to withhold FICA and unemployment tax, just as with any other employee
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.
But even then, the strategy can still pay off.
👉 See the IRS’s breakdown of household employer rules for more guidance.
What If Your Child Is Over 18?
The payroll tax exemptions vanish. That means wages to your 18+ child are subject to Social Security, Medicare, and unemployment tax.
Still, the OBBBA’s higher standard deduction means your child can pocket over $15,000 tax-free. Even if payroll taxes bite, the family as a whole usually comes out ahead
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The Real-World Numbers
Here’s a simplified look at how the numbers work for three kids, totaling $47,250 in wages:
- Sole Proprietor: Kids pay no income or payroll taxes. You deduct the full $47,250, saving big.
- S Corporation: Payroll taxes apply (~$3,615 FICA + $1,400 unemployment). Still, you deduct wages plus taxes, saving roughly $18,293 if you’re in a 35% bracket.
Even after payroll costs, the family nets nearly $10,000 in government-backed savings
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👉 Want a calculator to run your own numbers? Tools like TaxAct’s self-employed tax calculator can help.
Key Takeaways for Parents
- The $15,750 standard deduction (2025) means tax-free earnings for kids.
- The biggest wins come from sole proprietors and spouse partnerships with under-18 kids.
- Corporations still benefit, but payroll taxes cut into the savings.
- Keep everything above board: pay fair market wages, document hours, and keep records.
👉 For a full guide on deduction strategies, see IRSProb.com.
Common Questions Parents Ask
Can I really pay my 10-year-old?
Yes—if the work is legitimate. Kids can file, organize, do marketing tasks, model for ads, or help with social media. Just don’t pay them for chores like taking out the trash.
Do my kids need to file tax returns?
If their income is under the standard deduction ($15,750), generally no. But it may still be wise to file to report the wages.
What about retirement accounts?
Huge opportunity! Wages qualify your child to contribute to a Roth IRA, creating tax-free growth starting at a young age.
What if I pay more than $15,750?
Anything above that is taxable. But it may still be worth it, depending on your bracket and your child’s goals.
Quick Recap
- No more personal exemptions, but the OBBBA standard deduction makes up for it.
- Kids can earn up to $15,750 tax-free in 2025.
- Sole proprietors and spouse-only partnerships reap the biggest savings (no payroll taxes).
- Corporations still benefit but must pay payroll taxes.
- Document wages carefully and pay fair market value.
Final Word from IRSPROB.com
The hire-your-child strategy is one of the most underrated tax moves for family businesses. The OBBBA gave it even more punch with the 2025 standard deduction increase.
If you’re self-employed, this isn’t just about saving money—it’s about teaching your kids responsibility, giving them tax-free income, and keeping wealth inside the family.
Handled properly, it’s one of those rare tax breaks where everyone wins.
👉 Learn more about advanced tax strategies for families at IRSProb.com.
