If you run a family business, you've probably asked yourself at some point, "Can I hire my adult child to work at my company?" Well, the short answer is yes. When structured correctly, hiring your adult child can reduce your company's taxable income while creating meaningful financial opportunities for your family.
How Hiring Your Adult Child Can Reduce Business Tax Liability
When you hire your adult child and pay reasonable wages for real work performed, those wages become a deductible business expense. That deduction reduces your business's taxable income.
For pass-through entities such as sole proprietorships, partnerships, and S corporations, lowering taxable income can reduce the amount that flows through to your personal return. Depending on your (and their) overall income level, this may also interact with your Qualified Business Income (QBI) deduction, which is now a permanent part of the tax code.
Your child reports the wages as income. If they are in a lower tax bracket, the overall family tax burden may decrease. The income doesn’t disappear, but shifting income to a lower bracket can create measurable savings. In 2026, a single filer’s standard deduction is $16,100, so wages up to that amount may result in little to no federal income tax depending on their full situation.
This type of planning works best when reviewed alongside your full tax picture, including projected income, retirement contributions, and entity structure.
Payroll Rules You Cannot Ignore
Hiring a family member does not eliminate payroll compliance.
Your adult child must:
- Perform legitimate work for the business
- Be paid reasonable compensation for that work
- Be included in payroll reporting
In most cases, adult children are subject to standard Social Security and Medicare taxes, especially when the business operates as an S-corporation or C-corporation. Sole proprietorships and partnerships may have different treatment for younger children, but adult employees generally follow standard payroll rules.
These nuances are where tax advisory services truly matter. Structuring compensation properly helps you stay compliant while still benefiting from the deduction. 
Beyond Tax Reduction: Building Long-Term Family Wealth
The advantages of hiring your adult child go beyond lowering business income.
Earned wages allow your child to:
- Contribute to a Roth IRA or traditional IRA. For 2026, the IRA contribution limit is $7,500
- Begin building retirement savings early
- Establish a credit history
- Learn financial responsibility
Starting retirement contributions in your twenties instead of your thirties can significantly change long-term outcomes due to compound growth. In some cases, business-sponsored retirement plans may also be available, depending on eligibility rules.
For many small business owners, this strategy also becomes part of succession planning. Involving the next generation in operations builds experience and strengthens continuity.
When This Strategy Makes Sense
Hiring your adult child may be appropriate if:
- Your business is consistently profitable
- You are in a higher marginal tax bracket
- There is legitimate work available
- You want to introduce long-term financial planning for your family
A CPA can evaluate whether the deduction meaningfully reduces your liability and whether your compensation structure aligns with IRS standards.
FAQs
Can I hire my adult child in my small business? Yes, as long as they perform real work and receive reasonable compensation.
Does hiring my child eliminate payroll taxes? Generally no. Adult children are typically subject to standard payroll tax rules.
How much can I pay my child? Compensation must reflect fair market value for the work performed.
Can my child contribute to a Roth IRA if I pay them wages? Yes. Earned income makes them eligible to contribute, subject to annual contribution limits.
Turn Strategy Into Structure with Myrick CPA
Hiring your adult child can be a powerful income-shifting and wealth-building strategy when it is structured correctly. It requires thoughtful planning, payroll compliance, and a clear understanding of how it fits into your broader tax picture.
Myrick CPA works with small business owners nationwide to implement proactive tax advisory strategies. These services are available to both new and existing clients and are structured to provide ongoing guidance throughout the year.
If you want to explore whether this approach makes sense for your business and your family, schedule a consultation to build a strategy that supports both today's tax goals and tomorrow's legacy.
