If you follow Internal Revenue Service rules, hiring your child to work in your business can offer several potential tax advantages:
-Deductible wages: You may be able to deduct your child’s wages as a business expense, which can reduce your taxable business income.
-Payroll tax savings: If your child is under age 18 and you operate a sole proprietorship or a partnership where both partners are the child’s parents, their wages generally aren’t subject to Social Security or Medicare taxes.
-Standard deduction benefit: Your child typically won’t owe federal income tax if their annual earnings are below the standard deduction amount (for example, $15,000 for 2025; the exact 2026 amount will be adjusted for inflation).
-Opportunity to start investing: Because the wages count as earned income, your child may be eligible to contribute to an Individual Retirement Account, including a Roth IRA, up to the annual IRA contribution limit or their earned income for the year, whichever is lower.
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While Thrivent does not provide specific legal or tax advice, we can partner with you and your tax professional or attorney. State tax rules may differ from federal rules governing the tax treatment of Roth IRAs and there may be conflicts between federal and state tax treatment of IRA conversions. Consult your tax professional for your state's tax rules. If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance, may be solicited.
