he portion of small businesses employing their own children has increased by more than 50% since 2018. This 2025 data from Gusto, a provider of payroll, benefits and human resources software, reflects staffing challenges and a growing interest in involving the next generation in family businesses. From a tax perspective, hiring your minor child this summer, while school is out, can also be advantageous.
The wages you pay your child are generally deductible as a business expense. This deduction can reduce your federal income tax bill, as well as your self-employment tax and state income taxes, if applicable.
Even if your child earns more than the standard deduction, any remaining income is typically taxed at the child's lower marginal rate, likely only 10%. This strategy can reduce your family's overall tax liability.
Additional savings may be available on payroll taxes. If a business is a sole proprietorship or a partnership where both partners are the child's parents, wages paid to a child under age 18 are generally exempt from Social Security and Medicare taxes. Wages paid to a child under age 21 are exempt from federal unemployment tax.
To qualify for these benefits, the job must be legitimate, compensation must be reasonable and proper payroll records should be maintained. Let us know if you'd like to learn more about the tax benefits.