Can I hire my children in my business

Quick answer: Yes — you can hire your children to work in your business, and depending on the business structure, their pay may be exempt from Social Security, Medicare, and unemployment (FUTA) taxes. The exact tax treatment depends heavily on the child's age and how your business is organized.

Explanation

If your business is a sole proprietorship, or a partnership where each partner is a parent of the child, wages paid to your child have special treatment. IRS Publication 15 explains: payments for the services of a child under age 18 who works for their parent in a trade or business aren't subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.¹

There's also a FUTA (unemployment tax) break: payments for the services of a child under age 21 who works for their parent, whether or not in a trade or business, aren't subject to FUTA tax.²

Income tax withholding is generally still required, though: payments for the services of a child of any age who works for their parent are generally subject to income tax withholding unless the payments are for domestic work in the parent's home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child isn't regularly employed to do such work.³

Important exception — corporations and most partnerships: If your business is a corporation (even one you control) or a partnership where not every partner is the child's parent, these breaks disappear. Publication 15 is clear: the wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if they work for a corporation, even if it is controlled by the child's parent... or a partnership, even if the child's parent is a partner, unless each partner is a parent of the child. In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you.⁴

What it depends on:

• Business entity type — sole proprietorship, parent-only partnership, LLC (and how it's taxed), S corp, or C corp each have different rules.
• Child's age — the Social Security/Medicare exemption applies under age 18; the FUTA exemption applies under age 21.
• Nature of the work — whether it's in the trade or business versus domestic work in your home.
• Real work for real pay — the documents provided don't address the underlying requirement (common in general tax guidance) that wages must be reasonable for actual services performed; this is a factual/valuation matter our documents don't cover in detail.

Since your specific entity type, your child's age, and the nature of the work all change the answer significantly, it's worth talking with a CPA to set up payroll correctly and document the arrangement.