Can a business owner hire their children

Quick answer: Yes, businesses commonly hire owners' children, but the documents provided don't directly cover the specific rules for family-employment (like the special FICA/FUTA exemptions for a child under 18 working for a parent's sole proprietorship). What I can address from the documents you've given me relates to related-party transactions generally and a couple of adjacent rules — but for the core "hiring your kids" rules, you'll want to confirm with a CPA or check IRS Publication 15 or 334 directly.

What the documents do cover

One document touches on family relationships in a different context — the related-party rules for losses on sales or trades of property, not employment. IRS Publication 550 explains that you generally cannot deduct a loss on a sale or trade of property between certain related parties, and this includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.)¹². This is about property sales, not wages paid to a child employee, so it doesn't answer your question directly.

The kiddie tax guidance (Rev. Proc. 2025-32, the annual inflation-adjustment guidance) is relevant if your child earns money from any source, including wages you pay them, but it deals with unearned income, not wages. Specifically, for taxable years beginning in 2026, the amount used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax" is $1,350, the same amount provided in §63(c)(5)(A), as adjusted for inflation³. Wages a child earns from working in your business are earned income, not unearned income, so the kiddie tax generally does not apply to those wages — but this document doesn't say that explicitly, so treat this as general background rather than something drawn directly from the text.

What isn't covered here, and what usually matters

Questions people typically have about hiring their kids include:

• Whether wages must be "reasonable" for actual work performed (an ordinary-and-necessary business expense question under IRC § 162(a), which the documents don't address for family wage arrangements specifically)
• Special payroll tax treatment for children under 18 employed by a parent's sole proprietorship or partnership of only the parents
• Standard deduction and filing thresholds for a dependent child's earned income
• Whether the business is a sole proprietorship, partnership, or corporation — this often changes the payroll tax treatment substantially

None of the uploaded documents address these specific mechanics, so I can't give you sourced answers on them today.

In practice

Hiring your children in your business is a common and generally legitimate practice as long as the pay is for real work and is reasonable in amount — but the documents I have access to don't spell out the reasonableness standard or the special employment-tax rules for children employed by parents.

Given that the payroll-tax treatment differs significantly depending on your business's entity type (sole proprietor, partnership, corporation) and your child's age, it's worth a conversation with a CPA — such as our firm — to make sure the wages, documentation, and any payroll tax exemptions are set up correctly for your specific situation.