IRC §162(a)(1)
Hiring Parents / Dependent Employment
Employing parents or dependents for legitimate business work shifts income out of your tax bracket and into theirs. The strategy works because a parent earning within their standard deduction (~$16,100–$18,250 depending on age) pays $0 federal income tax on those wages.
The savings figure shown is the household net benefit — your income and SE tax savings as the business owner, minus the FICA taxes your parent pays as the employee. Your gross deduction is larger; the net is what the family collectively keeps after all tax obligations are satisfied across both returns.
Who this may apply to
- Have parents or dependents who can perform real work
- Can document the work performed
- Must pay reasonable wages
What could block this
- No legitimate work need
- Pay is not reasonable for the services
- Payroll and work records cannot substantiate the arrangement
Important considerations
- Unlike children under 18 employed by a sole prop, parent employment is NOT exempt from FICA — the employer must pay 7.65% and withhold 7.65% from the parent’s wages. The savings figure already accounts for this cost — it is not an additional reduction you need to calculate
- The work must be genuine and documented — the IRS scrutinizes family transactions closely
- If your parent has other income, their wages may push them into a taxable bracket — run the numbers before assuming the wages are entirely tax-free
Professional support
Tax Strategist
Will structure the employment arrangement, set up payroll, and ensure compliance.
Timing
Set up employment at the start of a tax year when possible for clean record-keeping.
Official sources
Reviewed 2026-07-24