From Piggy Bank to Payroll: How Hiring Your Kids Can Shrink Your 2025 Tax Bill — and Grow Their Money Mindset

Quick take: Put your child on the payroll for real, age-appropriate work, pay a market wage, and a slice of your business profit can slide into a 0 % income-tax bracket and bypass Social Security and Medicare tax altogether. Done right, everyone wins: your books, your wallet, and your kids’ financial IQ.

1. Why 2025 Is an Especially Good Year to Try It

The standard deduction for single filers jumps to $15,000 in 2025. That means a teenager can earn up to $15,000 in W-2 wages and owe no federal income tax at all — yet you still deduct the wages as a business expense. IRS

And if your business is a sole proprietorship (or a partnership owned only by the parents), the IRS waives all Social Security and Medicare tax on wages paid to children under 18, plus federal unemployment tax until they turn 21. IRS

Put the two rules together and a parent-owned landscape company, bakery, or digital-marketing shop can shift $15,000 of profit out of a 22 %–35 % bracket and into a 0 % bracket with no payroll tax. That’s a cash saving of roughly $5,000 to $7,000 for work you were probably paying someone else to do anyway.

2. Turning Chores into Legit Jobs

The IRS doesn’t bless “allowance rebranded as payroll.” The work must be:

• Real. Anything you’d pay a part-timer for qualifies: social-media posts, product photos, warehouse cleanup, spreadsheet updates, flyer distribution.
  
• Age-appropriate. The Tax Court has upheld wages for children as young as seven when the tasks fit their abilities.
  
• Fairly paid. Benchmark local rates for similar work. If a neighborhood teen earns $12 an hour stuffing mailers, pay your 15-year-old the same, not $30.
  

Pro tip: Write a mini job description, log hours on a simple timesheet, and stash screenshots of comparable job ads in a “Payroll — Kids” folder.

3. The Mechanics (It’s Easier Than It Sounds)

1. Run payroll through your usual software (Gusto, QuickBooks Payroll, ADP).
   
2. Issue a check or direct deposit each pay period; memo line “Payroll.”
   
3. Skip FICA if the child is under 18 and you’re taxed as a sole prop or parent-only partnership.
   
4. File a year-end W-2 (even if no tax was withheld).
   
5. Deposit the money into an account in your child’s name — a Roth IRA (up to $7,000 in 2025), 529 college plan, or high-yield savings account.
   

4. A Numbers Story: The Johnson Design Studio

• Before payroll
  
  • Net profit: $120,000
    
  • Self-employment tax (15.3 %): $18,360
    
• After hiring 16-year-old Maya for product photography @ $15/hour, 20 hrs/week, 50 weeks
  
  • Maya’s W-2 wage: $15,000 (deductible)
    
  • Business profit drops to $105,000
    
  • Self-employment tax savings: $2,295
    
  • Federal income-tax savings (assume 24 % bracket): $3,600
    
  • Total family tax savings: ≈ $5,900
    

Maya owes zero federal income tax and zero FICA. The studio pockets nearly six grand, and Maya’s first Roth IRA contribution begins compounding for the next 50 years. Win-win-win.

5. Pitfalls to Dodge

6. Beyond Taxes: Life Lessons & Long-Term Wealth

• Financial literacy — Kids see gross vs. net pay, taxes, and saving firsthand.
  
• Wealth head start — Four summers of $6,000 Roth IRA contributions could grow past $200,000 by age 50 at 7 % returns.
  
• Family engagement — Your children understand what you actually do all day—and contribute to it.
  

Ready to Give Your CFO a Juice-Box?

If you’d rather not wrestle W-2s and timesheets, our team sets up “family payroll” start-to-finish: job descriptions, reasonable comp studies, direct-deposit runs, and Roth IRA coaching. Book a 20-minute strategy call and make 2025 the year your business—and your kids—grow together.

The ideas in this post are educational, not individualized tax advice. Always consult a qualified tax professional about your specific situation.