• Federal income tax: A child who can be claimed as your dependent pays zero federal income tax until their standard deduction is used. For 2025, that deduction is the greater of $1,350 or earned income + $450, capped at the single filer standard deduction of $15,000.

• Payroll taxes: FICA and FUTA treatment depends on entity type (see below).
• Retirement saving: Earned wages allow Roth IRA/IRA contributions (up to the child’s earned income; annual IRS limits apply). Despite claims elsewhere, you cannot just throw money in a ROTH for your kids...you NEED earned income!
• Business deduction: Your company deducts reasonable wages like any other payroll expense.

• FICA (Social Security/Medicare): Not owed on wages paid to your child under age 18 for services in your trade or business. Just a weird law...
• FUTA (federal unemployment): Not owed on wages paid to your child under age 21.
• Federal income tax withholding: Required unless the child claims exemption via Form W-4 and truly qualifies. You can likely withhold 0 if they are below the std deduction.
• Issue a W-2 (never a 1099 for employees).

• Same favorable payroll tax rules as a sole proprietorship for that child (no FICA <18; no FUTA <21).
• If any partner is not a parent of the child, treat like a regular employee (see corporations below).

• FICA and FUTA: Apply regardless of the child’s age.
• Federal income tax withholding: same as above
• Issue a W-2.

• Age? Well it depends. The Anomaly team has reviewed US Tax Court cases with a child at the age of 7 that passed. It is not to say below that doesn't work, it just has no case law to support it. 
• Real work only: Assign tasks appropriate to age/skill (e.g., filing, scanning, social media content prep, product photos, inventory counts, cleaning, data entry, basic web updates). No “made-up” jobs. If your child is an infant...it is unlikely they can perform IRS approved work. 
• No under the table payments - you must have them on payroll. You can't just transfer cash. This will land you in hot water. 
• Fair market value (FMV): Set the hourly rate to what you’d pay a non-family entry-level worker for the same job in your area. Keep job descriptions and local wage data on file.
• Track hours: Use timesheets or your payroll system’s time tracking.

• A dependent child’s standard deduction: greater of $1,350 or earned income + $450, but not more than $15,000 (single filer amount).
• Practical tip: If the child has only wages and you keep W-2 pay within the standard deduction, the child owes no federal income tax. State tax may still apply.

• Federal: Children under 16 may generally work in a parent-owned non-hazardous business; hazardous occupations are prohibited until 18.
• School-hour limits and permitted duties vary by age and by state. Keep work non-hazardous and age-appropriate, and observe hour limits.

• Registration: Most states require new-hire reporting and state unemployment (SUTA) registration even for family employees. Payroll companies will handle this. 
• Withholding: State income tax withholding may apply even when federal tax is zero.
• Workers’ comp: Some states require coverage for employees, including family. This is rare but should be checked. 

• We typically set up client payroll in Gusto, but you may use any compliant provider, especially the one your business already uses. 

• Ensure:
  • Proper employee setup for your child with correct entity-based FICA/FUTA treatment.
  • Minor/guardian forms may be needed
  • Accurate time tracking and direct deposit.
  • State unemployment and workers’ comp configured.
  • Year-end W-2 filing.

• Job description with FMV support (local wage data or job postings). We also recommend a contract. Anomaly can assist here. 
• Completed W-4 and I-9; minor work permit if required by state.
• Timesheets/time logs and supervisory records.
• Year end W-2 from payroll provider (Say Gusto)

 Over the years, we have seen business owners make some costly mistakes here. Let's avoid those!

• Never transfer cash outside of payroll!
• Paying above FMV or for tasks not actually performed.
• Issuing a 1099 to your child for employee-type work. This will never work. 
• Ignoring FICA/FUTA when operating as an S-corp/C-corp (they apply regardless of age).
• No timesheets or poor records.

• Facts: Parent operates a sole proprietorship (Schedule C Business). Child, age 15, does product photography and inventory 6 hours/week for 30 weeks at $15/hour.
• Wages: 6 × 30 × $15 = $2,700.
• Federal income tax: Within the dependent standard deduction; no federal income tax due.
• FICA/FUTA: None owed (child <18 for FICA; <21 for FUTA) because the business is a parent-owned sole proprietorship.
• Business deduction: $2,700 reduces the parent’s Schedule C income.
• Optional: Child can contribute up to $2,700 to a Roth IRA (not to exceed earned income; annual IRA limits also apply). This means the $2,700 will grow tax free...forvever!

1. Confirm entity type and apply the correct payroll tax rules.
2. Define duties and FMV pay; set a reasonable hourly rate.
3. Add the child to payroll (Gusto or your provider), collect W-4/I-9, and set up state accounts.
4. Track hours and run payroll on a regular schedule.
5. File and deliver Form W-2 at year-end; maintain records.