Yes, you can put your five-year-old on the payroll, and hiring your 5-year-old for tax purposes is legal under federal law as long as your business is entirely owned by the child’s parents. Whether it actually saves you money is a separate question, and it depends on how your business is organized, what work the child genuinely does, and how carefully you document it. The IRS scrutinizes wages paid to very young children closely, and Tax Court decisions show that parents who cut corners lose the deduction almost every time.
Is It Legal to Employ a Child This Young
The Fair Labor Standards Act sets 14 as the minimum age for most non-agricultural work, but a specific exemption removes that floor for children working in a business entirely owned by their parents. 1U.S. Department of Labor. Fact Sheet 43 – Child Labor Provisions of the Fair Labor Standards Act for Nonagricultural Occupations There is no minimum age under the exemption, and the usual restrictions on hours for minors do not apply. If any non-parent holds an ownership interest, the exemption is gone. 2eCFR. 29 CFR 570.126 – Parental Exemption
Two limits still bite. Children under 16 cannot work in mining or manufacturing even for a parent, and children under 18 cannot work in any occupation the Secretary of Labor has declared hazardous — power-driven equipment, driving, roofing, demolition, logging, and similar work. 3U.S. Department of Labor. Fact Sheet 43 – Child Labor Provisions of the Fair Labor Standards Act for Nonagricultural OccupationsWhat Jobs Are Off-Limits for Kids None of this is realistic work for a five-year-old anyway, but if your business involves that equipment or environment, keep the child out of it.
State child labor laws still apply, and many states go further than federal rules. Some require work permits for parent-employed minors; some exempt family employment altogether. Where federal and state rules overlap, the law more protective of the child controls. 4U.S. Department of Labor. Age Requirements Check with your state labor department before you set anything up.
Whether Your Business Structure Delivers the Tax Savings
The payroll tax break that makes this strategy attractive only exists in certain business structures. If yours doesn’t qualify, you still get a deduction for wages paid, but the extra savings disappear.
Sole Proprietorships and Parent-Only Partnerships
If you operate as a sole proprietor, or as a partnership where both partners are the child’s parents, wages you pay to your child under 18 are exempt from Social Security and Medicare taxes. 5Internal Revenue Service. Family Employees Wages to a child under 21 are also exempt from federal unemployment tax under those same structures. 6Office of the Law Revision Counsel. 26 USC 3306 – Definitions That’s 7.65% saved on the employer side and another 7.65% on the child’s side.
A single-member LLC that hasn’t elected corporate treatment is generally treated as a disregarded entity for employment tax purposes, which lines it up with a sole proprietorship. Confirm the classification with a tax professional before relying on the exemption.
Corporations and Mixed Partnerships
If your business is a corporation, including an S-corp, or a partnership that includes any non-parent partner, or an estate, the exemptions vanish. Your child’s wages are subject to Social Security, Medicare, FUTA, and income tax withholding like any other employee’s. 7Internal Revenue Service. Tax Treatment for Family Members Working in the Family Business You still get the deduction; the payroll tax savings are simply not there.
How Much a Five-Year-Old Can Reasonably Be Paid
The IRS requires wages paid to a child to be reasonable for the work actually performed, comparable to what an unrelated employee would earn for the same tasks. With a five-year-old, the list of credible jobs is short and the defensible rate is low.
Realistic tasks include tidying an office, sorting and organizing supplies, shredding paper under supervision, and appearing in product photos or marketing materials. Most of that work doesn’t command a high hourly rate. A child cleaning up for 30 minutes twice a week at something close to local minimum wage or basic cleaning rates produces a modest annual total, not the $10,000 or $15,000 figures that circulate online.
Wages your child earns are taxed at the child’s own rate, and the kiddie tax doesn’t touch earned income — it applies only to unearned income like dividends and interest. A dependent child’s standard deduction equals their earned income plus $450, up to the full single-filer standard deduction, which is $16,100 for 2026. 8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A five-year-old at a defensible rate isn’t going anywhere near that ceiling, so federal income tax owed is typically zero. State income tax may still apply depending on where you live.
Tax Court history shows what happens when parents push too far. In Fisher v. Commissioner (2016), a parent paid her children for business work but kept no time records, issued no W-2s, and made no withholding payments; the court allowed only $250 per child per year. In McMinn v. Commissioner (2016), parents paid reasonable monthly wages and then added large year-end bonuses tied to business performance. The court kept the monthly wages but disallowed the bonuses, reasoning that no unrelated employer would pay children that way. Paying a five-year-old $30 an hour to dust shelves will not survive that kind of review. Look at local rates for cleaning, basic organizing, or child modeling and build your rate from there.
Documentation That Holds Up in an Audit
The deduction lives or dies on your records. Generalized descriptions of duties and vague hours are what the Tax Court refused to credit in Fisher. Keep the same paperwork you would for any other employee.
- A written, dated job description specific to the child’s actual tasks, updated when duties change
- Timesheets with date, start and end times, and tasks performed for each session
- Notes or screenshots showing how you set the hourly rate, such as comparable local postings
- Proof the work happened: photos of completed work, marketing materials featuring the child, organized supply areas
- An annual Form W-2, issued like you would for anyone else
- Regular pay on a set schedule, not a lump sum at year-end
Pay by check or direct transfer, not cash. Weekly or biweekly payments look far more legitimate than sporadic or annual ones. Treat this child on paper the way you would treat any employee, because that is exactly what the IRS is checking for.
Payroll Paperwork You Still Owe
Even when the FICA and FUTA exemptions apply, you still run proper payroll. Your business needs an EIN, and your child needs a Social Security Number before you can report wages.
Every employee, including your minor child, needs a completed Form I-9. For a child under 18 who can’t produce a standard identity document, a parent or legal guardian can establish identity in Section 1 and List B by writing “minor under age 18,” while the child still presents a List C work-authorization document such as a Social Security card or birth certificate. 9U.S. Citizenship and Immigration Services. Minors
Your child also needs a Form W-4. Federal income tax withholding technically applies to a child’s wages regardless of age. 5Internal Revenue Service. Family Employees If the child had no tax liability last year and expects none this year, they can claim exempt on the W-4, which brings the withholding to zero. You still keep the form on file.
Some states require work permits for minors regardless of whether the employer is a parent, and workers’ compensation rules vary — some states require coverage for family members, others exempt minor children of the business owner. Ask your state labor department and your insurance carrier before the child starts.
Turning the Wages Into a Roth IRA
The strongest long-term payoff of paying a young child legitimate wages is a custodial Roth IRA. Any minor with earned income can contribute, and wages from your business qualify. For 2026, the contribution limit is $7,500 or the child’s total earned income for the year, whichever is less. 10Internal Revenue Service. Retirement Topics – IRA Contribution Limits A five-year-old earning a few thousand dollars at a reasonable rate can have every dollar contributed. The money doesn’t need to come from the child’s account — you can fund it as a gift after the wages have been paid.
Contributions at age five have roughly 60 years to grow tax-free. Small amounts compounding from that age outrun much larger contributions started at 30. The immediate deduction and payroll tax savings are the near-term win; the Roth is where the real value sits.
Keeping It Realistic
Parents who get burned on this strategy are almost always the ones who treat it as a paper exercise: a child listed as an employee, a generous wage on record, and nothing actually happening. The IRS knows that pattern, and the standard applied to family employment is stricter than for an outside hire.
For a five-year-old, keep expectations modest. Real work at a defensible rate produces a few thousand dollars a year — enough for a meaningful deduction, zero payroll taxes in a qualifying structure, and a Roth IRA that will compound for decades. Push the number higher without the work and paperwork to back it up, and a legitimate tax strategy becomes an audit problem.