Putting Your Children on Payroll

You saw the TikTok. Someone online said you can put your kids on payroll, pay them thousands of dollars, and skip the taxes. Some of that is true, and some of it leaves out the parts that matter here in Maine. This guide walks through what putting your children on payroll actually involves, how your business structure changes the math, and the state rules that do not disappear just because the employee is your own kid. 

Let's go.

Key Takeaways from this Article

• Yes, you can put your children on payroll, as long as they do real work and you pay them a reasonable wage for it.
• Your business entity decides the tax treatment: sole proprietorships and parent-only partnerships get federal payroll tax breaks, while S corps and C corps do not.
• For 2026, a child can earn up to the federal standard deduction, reported as $16,100, before owing any federal income tax.
• The federal payroll tax exemptions do not carry over to Maine, so state unemployment and paid family leave contributions still apply.
• Maine child labor rules still apply to your own children, including work permits for minors under 16.

Can You Legally Put Your Child on Payroll?

Yes. Hiring your own child is a legitimate, long-standing practice, and the tax code allows for it. But two rules always apply, no matter how your business is set up or how old your child is.

First, the child has to actually do work. This is the part a lot of people skip. You cannot put a toddler on the books for a job they are not doing and call it a paycheck. There has to be a real role. Sometimes that role is genuine even at a young age, such as a child modeling in photos for your company's marketing. More often it looks like a teenager filing paperwork, cleaning the shop, updating your website, or helping at the front desk.

Second, the pay has to be reasonable for the work. If you would pay an outside teenager $18 an hour to run your social media, that is roughly what your own teenager should earn for the same job. Paying a 12-year-old $60 an hour to sweep floors is the kind of thing that draws attention. The wage should match the work, not a tax target you are trying to hit. This responsibility sits with you as the business owner. Keep it honest and keep it documented, and the strategy holds up.

How Does Your Business Entity Type Change the Tax Treatment?

Your business may be eligible for tax breaks depending on the structure of your business. And even then, these tax breaks are only at the federal level.

If your business is a sole proprietorship or a partnership where the only partners are the child's parents, the federal breaks apply:

• Social Security and Medicare taxes are not owed on the child's wages while the child is under 18.
• Federal unemployment tax, known as FUTA, is not owed while the child is under 21.
• Federal income tax withholding technically still applies, though in practice a child earning under the standard deduction will owe nothing, so little or none comes out.

If your business is a corporation, an S corp, a C corp, or a partnership that includes someone other than the parents, none of those breaks apply. Your child is treated like any other employee, and Social Security, Medicare, and federal unemployment are all owed regardless of age.

A lot of owners assume the tax break applies to them because they heard about it online, then find out their S corp does not qualify. There are structures some advisors use to work around this, such as a separate family management company that employs the children, but that is a strategy to walk through carefully with your accountant, not something to set up on a hunch.

How Much Can You Pay Your Child Tax Free?

For 2026, a child can earn up to the federal standard deduction, reported as $16,100, without owing federal income tax. The standard deduction wipes out federal income tax on earnings up to that amount, which is why you hear owners say their child's paycheck should have no federal income tax taken out. The child is not going to owe any, so there is nothing to withhold.

That number moves every year, and it changed recently under new federal tax legislation, so confirm the current figure before you build your payroll around it. The idea holds even as the dollar amount shifts: earnings up to the standard deduction come to your child free of federal income tax, and because it is earned income from real work, the so-called kiddie tax on investment income does not apply.

Here is the practical picture. You pay your teenager a fair wage for genuine work. Your business deducts those wages as a legitimate expense, which lowers your taxable income. Your child receives the money and, staying under the standard deduction, owes no federal income tax on it. Compared with handing them the same money as an allowance out of your already-taxed income, the difference adds up.

Maine Rules Still Apply When You Hire Your Child

This is the part the national articles leave out, and it is the part that matters most if your business is here in Maine. The federal payroll tax exemptions above are federal only. They do not carry over to the state.

That means even when your sole proprietorship owes no federal Social Security, Medicare, or unemployment tax on your child's wages, Maine state obligations can still apply, including state unemployment and Maine's Paid Family and Medical Leave contributions. Do not assume your child is exempt from everything. The federal break is real, but it stops at the state line.

Maine's child labor laws also apply to your own children. A few specifics to know:

• Maine sets the general minimum working age at 14, with narrow exceptions such as work for a parent's business or agriculture.
• Minors under 16 must obtain a work permit before starting a job. In Maine that permit goes through the superintendent of schools where the child lives, and a new permit is required each time the child starts a new job, even when the employer is their own parent.
• Employers must keep daily time records for any worker under 18, showing start time, total hours, and finish time.
• Maine's minimum wage, reported as $15.10 per hour as of January 1, 2026, applies to workers of all ages. There is no lower youth wage in Maine.

In real life, the state understands what is going on when a business owner puts a young child on the payroll as a marketing model, and it is not hunting for violations in family businesses. A very young child is not running the fryer. But the rules are on the books, they apply to you, and following them is what keeps the arrangement clean if anyone ever asks.

Can Your Child Contribute to a Roth IRA?

Yes, and this is often the real long-term win. Once your child has earned income from legitimate work, they become eligible to contribute to a Roth IRA, up to their earned income or the annual contribution limit, whichever is lower.

So if your child earned $5,000 working for your business this year, $5,000 is the most that can go into the Roth, even if the annual limit is higher. Money contributed young has decades to grow, which is what makes this attractive to families thinking past this year's tax bill. The annual limit changes, so confirm the current figure before you set an amount.

What Documentation Do You Need to Stay Compliant?

Treat your child like any other employee, and the paperwork more or less takes care of itself. At a minimum, keep a simple job description, track hours worked, run the pay through actual payroll rather than slipping them cash, and issue a W-2 at year end. The goal is to be able to show, if anyone ever asks, that the work was real and the pay was reasonable.

FAQs: Putting Your Children on Payroll

At what age can you put your child on payroll?

There is no federal minimum age for hiring your own child in a family business, but the work has to be real and appropriate for their age. Maine sets a general minimum working age of 14, and minors under 16 need a work permit before they start.

Do you have to pay payroll taxes if you hire your own kids?

It depends on your business structure. If you are a sole proprietorship or a partnership owned only by the child's parents, wages to a child under 18 are exempt from federal Social Security and Medicare, and exempt from federal unemployment tax until age 21. S corps and C corps do not get these breaks. State obligations may still apply either way.

Does putting your child on payroll work if you are an S corp?

You can still hire your child through an S corp, but the federal payroll tax exemptions do not apply, so their wages are subject to Social Security, Medicare, and federal unemployment tax like any other employee. Some owners use a separate management structure to capture the break; talk that through with your accountant.

How much can you pay your child without them owing income tax?

A child can earn up to the federal standard deduction, reported as $16,100 for 2026, before owing federal income tax. Confirm the current year's figure before setting wages, since it adjusts annually.

Do you need a work permit to hire your own child in Maine?

Yes, if the child is under 16. Maine requires a work permit for minors under 16 before they begin a job, and that applies even when the employer is the child's own parent. The permit goes through the superintendent of schools in the town where the child lives.

Conclusion

Putting your children on payroll can be a genuinely smart move. It can lower your taxable income, teach your kids the value of real work, and set them up with early retirement savings. The catch is that the details decide whether it holds up: real work, fair pay, the right read on your business entity, and the Maine rules that the online videos never mention. Get those right and it is a clean, defensible strategy.

Written: July 2026

Written by: Kaylee Gregoire