Can I employ and pay my kids as a 1099 contractor to reduce my taxes?

This is actually a legitimate tax strategy! As a 1099 contractor, you're essentially running your own business (sole proprietorship by default unless you've formed an LLC or corporation). So yes, you can hire your children. Here's how it typically works: Your kids can earn up to the standard deduction amount ($13,850 for 2024, likely higher for 2025) without owing federal income taxes. The money you pay them is a legitimate business expense that reduces your taxable income AND your self-employment taxes. However, there are important requirements to make this legitimate: 1. The work must be real, necessary for your business, and age-appropriate 2. Pay must be reasonable for the work performed (market rate) 3. Keep documentation of hours worked, tasks completed, and payments 4. It's best to pay them by check or direct deposit, not cash If your kids are under 18 and working for a parent's sole proprietorship or partnership (only if both partners are parents), you don't have to withhold FICA taxes (Social Security and Medicare), which is another tax benefit.

I was in a similar situation last year trying to figure out the most tax-efficient way to manage my freelance income. I tried reading through the IRS guidance but kept getting different interpretations. A friend recommended I try https://taxr.ai and it was seriously helpful for decoding all the contractor tax rules. I uploaded my 1099s and some basic info about my business structure, and it explained exactly how hiring family members works and the documentation needed. The tax AI showed me that in my case (I have a single-member LLC), I needed to file specific payroll forms despite the FICA exemption. Saved me from making a pretty big mistake!

Just wanted to follow up about my experience with taxr.ai since I was skeptical at first. I finally tried it for my photography business and it was actually really helpful! It walked me through the exact process for hiring my teenager—showed me the forms I needed, how to document hours, and even explained the difference between reasonable compensation vs. overpaying which could trigger an audit. The tool pointed out that I could have my kid help with social media and editing, but paying them for modeling would need specific documentation to prove market rates. It also generated a simple contract and timesheet template I could use. Definitely more helpful than the generic advice I was finding online!

I spent WEEKS trying to get through to the IRS to clarify some questions about hiring my kids in my consulting business. Every time I called, it was either busy signals or being on hold for hours only to get disconnected. Super frustrating! Then I found https://claimyr.com and it completely changed my experience. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they hold your place in the IRS phone queue and call you when an agent is about to pick up. I finally got through and got clear answers about documentation requirements for paying my children from my 1099 income. The IRS agent confirmed everything about the age requirements and FICA exemptions that others mentioned here, plus gave me specific guidance on what could trigger an audit in this area. Definitely worth it after wasting so many hours trying to call myself!

Just wanted to admit I was totally wrong about Claimyr. After my frustrated reply, I decided to try it anyway since I was desperate to resolve my tax issue. The service actually worked exactly as described - got me connected to an IRS agent within a couple hours without having to sit by my phone. The agent confirmed that yes, as a 1099 contractor with a sole proprietorship, I can hire my kids and take the deduction. But she gave me a really important warning: you MUST have documentation that would satisfy an audit. She said they specifically look at family employment arrangements and red-flag cases where the compensation seems excessive for the work performed. She suggested keeping detailed job descriptions, timesheets, work samples if possible, and paying by check or direct deposit rather than cash.

One thing nobody's mentioned yet - make sure you're actually a legitimate 1099 contractor before doing this. If you're misclassified and should actually be an employee, trying to claim business deductions like this could cause problems. Check that you meet the IRS criteria for being an independent contractor (control over your work, using your own equipment, ability to work for multiple clients, etc). If your "client" is controlling when, where and how you work, you might be misclassified and should really be a W-2 employee.

Has anyone actually been audited over this? I've been paying my 14-year-old son from my web design business for about 3 years now. He does real work (basic coding and testing) but I've never given him a W-2 or anything formal, just been transferring money to his savings account and keeping track in my accounting software. Should I be worried?

I've been doing this with my 16-year-old daughter for my freelance graphic design business for about 2 years now. She helps with social media management and client communication. A few key things I learned the hard way: 1. **Documentation is everything** - I keep detailed timesheets, written job descriptions, and examples of her work. When I got a notice from the IRS (not a full audit, just questions), having this documentation made all the difference. 2. **Pay reasonable rates** - I was initially paying her $20/hour for basic tasks, but my accountant warned this could trigger scrutiny. Now I pay closer to $12-15/hour which is more in line with what I'd pay any teenager for similar work. 3. **Banking matters** - I set up a separate business checking account and pay her through there with proper memo lines. No more cash or personal account transfers. 4. **Get professional help** - I finally hired a CPA who specializes in small business taxes. The peace of mind was worth every penny, especially for the payroll setup. The tax savings are real though - I'm saving about $3,000 annually between the business deduction and avoiding self-employment tax on that income. Just make sure you do it by the book!

This thread has been incredibly informative! I'm actually in a very similar situation - been working as a 1099 contractor for about 6 months and getting hammered by self-employment taxes. I have twin 16-year-olds who could definitely help with data entry and basic admin work for my consulting business. A couple follow-up questions based on what I've read here: 1. Do I need to get workers' compensation insurance for my kids, or are they exempt since they're family members working for a sole proprietorship? 2. What happens if they earn more than the standard deduction amount in a year? Do they just pay regular income tax on the excess, or are there additional complications? 3. For those who mentioned getting an EIN - is this required even if you're just a sole proprietor, or only if you have other employees too? I'm planning to consult with a CPA like several people recommended, but wanted to get a sense of these basics first. The potential tax savings could really help my cash flow, especially since I'm trying to build up my business in the first year. Thanks to everyone who shared their real experiences - this is exactly the kind of practical advice I was looking for!

This is such a valuable discussion! I'm a tax preparer and see this situation come up frequently with my 1099 contractor clients. A few additional points that might help: **State tax considerations**: While everyone's focused on federal taxes (rightfully so), don't forget that some states have their own employment tax requirements for family members that differ from federal rules. For example, some states don't offer the same FICA exemption that federal law provides. **Retirement account opportunity**: One often-overlooked benefit is that your kids can contribute their earnings to a Roth IRA. Since they're likely in a very low (or zero) tax bracket, this is an incredible opportunity for tax-free growth over their lifetime. **Audit red flags to avoid**: The IRS tends to scrutinize family employment arrangements where the child's wages exactly equal the standard deduction amount year after year. It looks too "convenient." Varying the amount based on actual work performed looks more legitimate. **Business purpose test**: Make sure the work your children perform has a clear business purpose. "General help around the office" is vague and risky. "Data entry for client files" or "social media content creation" are much more defensible. The strategy absolutely works when done correctly, but the documentation and legitimacy requirements are real. I've seen clients save thousands in taxes, but I've also seen the IRS disallow deductions when the arrangement wasn't properly structured.

This has been such an educational thread! As someone who's been struggling with the self-employment tax burden on my 1099 income, I really appreciate everyone sharing their real experiences and professional insights. I'm definitely going to move forward with hiring my teenage kids, but I'm taking all the advice here seriously about doing it properly. The documentation requirements seem extensive but totally worth it for the tax savings. I'm particularly grateful for the warnings about reasonable compensation and state-specific requirements - those are things I never would have thought to research on my own. Planning to start with getting an EIN, setting up proper timesheets, and consulting with a CPA before I begin paying them. The Roth IRA opportunity that Zainab mentioned is an amazing bonus I hadn't considered. One last question - for those who've been doing this successfully, how often do you review/update your documentation practices? Is this something you adjust annually or just set up once and maintain consistently? Thanks again to everyone who contributed - this community is incredibly helpful for navigating these complex tax situations!

This thread has been incredibly helpful! I'm also a 1099 contractor dealing with heavy self-employment taxes, and the idea of hiring my kids never occurred to me before reading this. One thing I wanted to add that I learned from my accountant - if you're planning to hire your children, it's worth considering the timing of when you start paying them during the tax year. Since the standard deduction is an annual limit, you want to make sure you're maximizing the benefit across the full year rather than cramming payments into just a few months. Also, for those worried about audit risk, my CPA mentioned that the IRS is generally more concerned with businesses that are consistently losing money year after year. If you're profitable and just using legitimate strategies to reduce your tax burden, family employment is pretty standard and defensible when documented properly. I'm planning to start with my 17-year-old helping with bookkeeping and client follow-up calls - tasks that genuinely need to be done and that she's actually good at. The combination of reducing my taxable income AND getting her some work experience seems like a win-win. Thanks to everyone who shared their experiences and especially the tax professionals who provided real-world insights!

Great question about employment agreements! My CPA recommended keeping it fairly simple but professional. I created a basic written agreement that outlines: 1. **Specific job duties** - Instead of vague "administrative work," I list things like "data entry for client contact database," "social media post scheduling," and "invoice preparation" 2. **Work schedule expectations** - Not rigid hours, but general expectations like "approximately 8-10 hours per week" and "flexible schedule around school commitments" 3. **Compensation structure** - Clear hourly rate and payment schedule (I pay bi-weekly via direct deposit) 4. **Performance standards** - Basic expectations about quality, deadlines, and communication The agreement doesn't need to be overly complex, but having something in writing shows the IRS that this is a legitimate employment relationship, not just an informal family arrangement. My CPA also suggested including a clause about maintaining confidentiality for client information, which adds another layer of business legitimacy. I also keep a simple job description document that I update as tasks evolve. This helps justify the compensation and shows that the work is genuinely necessary for my business operations. The key is treating your kids like you would any other employee in terms of documentation, even though the relationship is more flexible. It might feel overly formal at first, but it really helps establish the legitimacy of the arrangement if you ever need to defend it.

This is such a comprehensive discussion! As someone who's been considering this strategy for my own 1099 contracting situation, I wanted to add one important consideration that hasn't been mentioned yet. If you're planning to hire multiple children, be aware that there's a cumulative effect on your business income that could potentially push you into different tax brackets or affect other deductions. While each child can earn up to the standard deduction amount tax-free, you're still reducing your business income by the total amount paid to all of them. For example, if you hire two kids at $13,000 each, that's $26,000 less in business income. This could affect your eligibility for certain tax credits or deductions that have income thresholds. It's generally still beneficial, but it's worth modeling the overall impact on your tax situation before committing to specific amounts. Also, something I learned from my research - if you're married and file jointly, your spouse's income also factors into some of these considerations. The strategy works great for sole proprietors, but the overall household tax picture can be more complex than just the business deduction calculation. Definitely echo everyone's advice about getting professional help to make sure you're optimizing your entire tax situation, not just this one strategy!