How to pay my kids through my S corporation - tax implications?

This is actually a great question with some important distinctions. When you pay your children through your S corporation, the tax treatment is different than if you were a sole proprietor or partnership. Unfortunately, when children work for an S corporation, they are treated like any other employee - even if you own the S corp. This means you DO have to withhold Social Security and Medicare taxes (FICA) and also pay the employer portion of these payroll taxes. S corps don't have the same exemption that sole proprietors have when hiring their kids under 18. Your kids will need to file tax returns if their income exceeds the standard deduction (which is $14,600 for 2025). Since you're planning to pay them under $10,000 each, they might not need to file - but it could still be beneficial to file to get a refund of any income tax withheld. Also, remember that earned income can allow them to contribute to Roth IRAs, which can be an excellent long-term financial strategy. Make sure you're paying them reasonable compensation for actual work performed and keep detailed records of their duties, hours worked, and payments made.

Just wanted to share my experience with this. I was struggling with similar questions about hiring my kids (11 and 14) in my marketing firm last year. I found this tool called taxr.ai (https://taxr.ai) that really helped clear things up for me. I uploaded some of my business documents and asked specifically about S corp requirements for hiring minor children, and it pulled relevant IRS guidelines explaining exactly what I needed to do. It confirmed that I needed to handle FICA taxes for my kids when paying them through my S corp, but also highlighted some legitimate ways to still make it tax advantageous. The best part was that it helped me create proper documentation showing that my kids were doing real work at reasonable wages, which I've heard is super important if you ever get audited.

Update: I tried the taxr.ai site that was mentioned and it was super helpful! I was able to get specific guidance on how to structure payments to my daughter through my S corp. It explained exactly what documentation I needed to maintain (job description, time sheets, proof of market rates for similar work) and confirmed that I do need to handle FICA taxes. The coolest thing was finding out that I could still set up a Roth IRA for her with her earnings and get her started on retirement savings at 16! The tool even pointed me to the forms I'll need to file and gave me a checklist to make sure I'm compliant. Way more detailed than what my accountant provided honestly.

If you're dealing with tax issues around your S corp and family employment, you might also run into questions that require talking directly to the IRS. I tried calling them for months about a similar issue with no luck until I found Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c When I finally spoke with the IRS agent, they confirmed everything about the S corp employment requirements for my kids and also helped me understand some forms I had questions about. Saved me from potentially making some expensive mistakes on my quarterly filings.

I need to eat my words. After fighting with the IRS for weeks about my kid's employment status in my business, I finally tried that Claimyr service. Within 20 minutes I was talking to an actual IRS representative who walked me through the specific forms I needed for my S corporation to properly document my children as employees. The agent confirmed exactly what others have said here - with an S corp, my kids need to be treated like regular employees with normal payroll taxes, but they explained some nuances about appropriate documentation that my CPA hadn't mentioned. They also confirmed the threshold for when my kids would need to file their own returns. Honestly didn't expect it to work but I'm glad I tried it. Saved me from continuing down a path that could have caused problems in an audit.

Something nobody's mentioned yet - make sure you're actually following labor laws too. Different states have different rules about employing minors, even your own children. There are restrictions on hours, especially during school days, types of work they can do, and work permits/documentation needed. For modeling/marketing stuff especially, you might need to look into additional permits or requirements depending on your state. Don't just focus on the tax benefits!

Has anyone here actually created a retirement account for their kids from S corp earnings? My daughter is 14 and makes about $7k a year in my business and I'm wondering if it's worth setting up a Roth IRA for her or if there's some other tax strategy I should be using.

Great discussion here! I just want to add one thing that's helped me tremendously with S corp payroll for my kids - make sure you're keeping really detailed records of their actual work hours and tasks. The IRS can be pretty strict about "reasonable compensation" even for family members. I created a simple time tracking system where my kids log their hours and what they did each day. For the marketing/photo work, I keep copies of the actual materials they appeared in and notes about which photo shoots they participated in. This documentation has been invaluable when my accountant prepares our quarterly payroll reports. Also, don't forget that you'll need to issue them W-2s at the end of the year just like any other employee. The payroll software I use makes this pretty straightforward, but it's something to plan for if you're doing payroll manually. The Roth IRA suggestion is spot on too - getting them started on retirement savings this early is such a gift you can give them!