Putting your kids on the payroll of the family business is one of the most repeated tax strategies on the internet — and one of the most misquoted. The payroll-tax exemptions are real, but they hinge on two things most summaries skip: the age bands and, above all, the legal structure of the business. Get the structure wrong and the exemptions vanish entirely.

Here are the actual rules, straight from the IRS's family-employees guidance and Publication 15. All of this is U.S. federal law, current as of tax year 2026.

The two age thresholds

When a child works in a parent's trade or business, per the IRS:

  • Under age 18: the child's wages are not subject to Social Security and Medicare (FICA) taxes — if the structure qualifies (next section).
  • Under age 21: the child's wages are not subject to federal unemployment tax (FUTA).
  • Any age: the wages are generally still subject to income tax withholding. The exemption is from payroll taxes, not from income tax.

So a qualifying business paying a 16-year-old saves the combined 15.3% employer+employee FICA plus FUTA on those wages, and the child still gets a W-2.

The structure requirement everyone skips

The FICA and FUTA exemptions apply only when the business is:

  • a sole proprietorship owned by the parent, or
  • a partnership in which every partner is a parent of the child.

They do not apply when the employer is:

  • a corporation — even one wholly controlled by the parents,
  • a partnership with any partner who isn't the child's parent, or
  • an estate.

The LLC trap

An LLC doesn't appear in that list because an LLC is taxed as whatever it elected. A single-member LLC taxed as a sole proprietorship (a disregarded entity), or a husband-wife LLC taxed as a partnership, qualifies. The same LLC after an S-corporation election does not — wages to the child become subject to FICA and FUTA at any age. Plenty of family businesses made an S-corp election for self-employment-tax reasons years ago and still believe the child exemption applies. It doesn't, and payroll filings that assume otherwise are wrong.

Making the arrangement defensible

The exemptions assume a real employment relationship. To keep it defensible:

  • Real work, age-appropriate. Filing, cleaning, social media for the business, deliveries with a licensed teen — documented duties.
  • Reasonable pay for the work. Pay what you'd pay an unrelated teenager for the same tasks, not an inflated number reverse-engineered from a tax goal.
  • Actually run payroll. Timesheets, regular paychecks to an account in the child's name, a W-2 at year end.
  • The wages are deductible to the business like any other compensation — that part works at any age and under any structure.

The bonus move: the child's standard deduction and a Roth IRA

Two follow-on effects make the strategy more than a payroll-tax play:

  • The child's wages are earned income, sheltered by the child's own standard deduction (for a dependent, at least their earned income plus a small add-on, up to the regular standard deduction). A child earning under that amount typically owes no federal income tax — and earned income is not subject to the kiddie tax, which only targets unearned income.
  • Earned income makes the child eligible to fund a Roth IRA, up to the lesser of their wages or the annual IRA limit. Decades of tax-free compounding started from the family business.

A worked example

A landscaping sole proprietorship pays a 16-year-old $8,000 in 2026 for documented weekend work:

  • Business deducts $8,000 of wages.
  • No FICA (child under 18, sole proprietorship), no FUTA (under 21).
  • The child's standard deduction covers the $8,000 → no federal income tax.
  • Up to the IRA limit of those wages can fund the child's Roth IRA.

If the same business had elected S-corp status, the $8,000 would be subject to FICA on both sides and to FUTA — the deduction survives, the exemptions don't.

Verify before you run payroll

This is an area where one structural detail flips the answer. TaxSentry's knowledge base carries the IRS family-employment guidance and Publication 15 with per-answer citations, so when you ask "does the under-18 FICA exemption apply to this client?", the answer names the rule and the document it came from. See also our guides to the 2026 mileage rates and the new OBBBA deductions.