Hiring Your Kids This Summer: What Makes It Legit (and What Gets You Audited)

Yes, you can put your kids on the practice payroll, and done right, it's one of the cleanest tax moves a practice owner has. Your child can earn up to the standard deduction, which is $16,100 in 2026, without owing a dime of federal income tax. You get a business deduction for paying them. And a chunk of the money you were going to spend on your kids anyway now comes out before tax instead of after.

But "done right" is carrying a lot of weight in that sentence. Summer is when most owners start this, because the kids are actually around. It's also when the sloppy versions get set up. So let me walk you through the line between a legitimate arrangement and audit bait, including one catch that trips up a lot of optometry practices specifically.

The Strategy in One Paragraph

You pay your child a real wage for real work in the practice. The wage is deductible to the business, which shifts that income out of your high tax bracket and into your child's, where the first $16,100 is wiped out by their standard deduction. You were already paying for their activities, their phone, their summer plans. This just moves some of that spending to the pre-tax side of the ledger, legally.

What Makes It Legit

Four things have to be true. Miss any one of them and the whole thing gets shaky.

The work is real and actually performed. It has to be legitimate work the practice needs, and age-appropriate for the kid doing it. Filing, inventory, cleaning, social media, data entry, photography, and scheduling, to name a few.

The pay is reasonable. You pay your child what you'd pay a stranger to do the same work. You cannot pay them $1,000 a week to empty the trash for two hours. Look at what the task is actually worth in your market, and keep a screenshot or two of comparable job postings to back up the number.

The paperwork exists. A written job description. A short note on how you set the rate of pay. And a timesheet showing actual hours worked. Do this even if no other employee in your practice keeps a job description or logs their time. Your kid is the one the IRS will look at hardest.

It actually runs through payroll. Your child is a W-2 employee, full stop. Real paychecks on a regular schedule, taxes handled like any other employee, a W-2 at year-end. Not a 1099. Not cash from your wallet. The money must land in an account in their name.

What Gets You Audited

The IRS does not hate this strategy. It hates fake versions of it. Here's what turns a smart move into a problem:

Paying for work that never happened, or that a young child plainly couldn't do. Wages that are wildly out of line with the task. No documentation, no timesheet, and a single lump-sum payment in December. Issuing a 1099 instead of running real payroll, or just moving money to your kid and calling it wages. And money that boomerangs right back to you, or that quietly pays for basic parental support like groceries and the mortgage.

Every one of those is avoidable. Keep the work real, the pay reasonable, and the file clean, and this holds up fine.

The Entity Catch Most Optometrists Miss

This is the part the internet usually gets wrong, and it matters a lot for optometry practices.

The headline payroll-tax break, where your child's wages are exempt from Social Security and Medicare, only applies if your practice is a sole proprietorship, or a partnership in which the only partners are the child's parents. In that setup, wages to your under-18 child skip Social Security and Medicare, and under-21 wages skip federal unemployment too.

If your practice is an S corporation or a C corporation, and many optometry practices are, that exemption does not apply. Wages to your child are subject to the full payroll taxes, roughly 15.3% combined. You still get the income-tax shift, which is the bigger lever for most owners, but you do not get the payroll-tax freebie.

There is an advanced structure, a family management company, that can restore the payroll-tax break for S-corp owners. It can work, but it adds real complexity and cost, and it is not a do-it-yourself move. If you're an S corp and you want to explore it, do it with your advisor, not a YouTube video.

So How Much Should You Actually Pay Them?

Just because your child can earn $16,100 tax-free doesn't mean they should. The number has to match the work. So the move is to hire them for the highest-skill work they can legitimately handle, because that work commands a higher reasonable wage, which means more money flowing out of your bracket and into theirs. A teenager who can run your social media or build spreadsheets is worth more per hour than one stuffing envelopes, and that's a good thing here.

Yes, They Keep the Money. You Still Have a Say.

This is the most common pushback I get. And yes, the money is legally theirs once you pay it. But once they're paid, you can take off the employer hat and put the parent hat back on. You still have plenty of say in how it gets used.

The one thing to avoid is using their wages for basic parental support, the things you're already obligated to provide, like the mortgage, groceries, or basic clothing. Fair game: private school tuition, sports and music and other activities, summer camp, their own spending money so you're not the ATM, and a Roth IRA.

The Quiet Bonus: a Roth IRA Before They Can Drive

That last one is worth slowing down on. Because your child now has earned income, they're eligible to fund a Roth IRA, up to $7,500 in 2026 or their total earnings for the year, whichever is less. Money that goes in after almost no tax, then grows and comes out tax-free decades from now.

A kid who contributes even a few thousand dollars a year through their teens can build a meaningful tax-free balance long before most adults start. The contribution is the tax-relevant piece, which is our lane. What the account actually invests in is a conversation for them and a financial advisor.

A Couple of Practical Notes

Hiring your kids does not cost you the dependent exemption. They can earn wages, file their own simple return, take their standard deduction, and still be your dependent, as long as you still support them and meet the usual rules.

And child labor laws vary by state. Many states carve out an exception for a child working in a parent's own business, but not all, so check your state's rules before you start.

Start This Summer, the Right Way

Summer is the natural on-ramp because the kids are available and the work is there. Set it up properly now and you capture the back half of the year instead of scrambling to justify a rushed arrangement in December. Build the file first: job description, pay rate, timesheet, real payroll. Then put them to work.

Want Help Setting This Up So It Holds Up?

If you want to use this strategy but you want the confidence that it's built to survive a closer look, or you're an S corp and you're not sure how the entity rules change your math, that's exactly the kind of thing we sort out together. Book a 30-minute Financial Clarity Call. We'll look at your situation, your goals, and the next steps to keep more of what you earn.

BOOK YOUR FINANCIAL CLARITY CALL

To your abundant practice,

Eric Levenhagen, CPA CTS

Eric Levenhagen, CPA CTS, is the only financial consultant who helps private practice optometrists improve the financial health of their practice with a simple process called Financial Harmony, designed to reduce their taxes and increase their after-tax profits so they can reach their personal goals faster.

ProWise Tax & Accounting LLC Disclaimer: This blog is intended for educational purposes and provides general information about tax, accounting, and small business topics. It is not professional advice, and using this blog does not create a client/CPA relationship between you and ProWise Tax & Accounting, LLC dba ProWise Financial Consulting, or its owners and employees. Blog posts are based on tax rules in effect at the time they are written and older posts are not always updated for changes. Tax rules change frequently. Always check with your CPA or accountant regarding the most current rules and how they apply to your specific situation.