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Unlock the Tax-Saving Potential of Parenting

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Discover how the Child Tax Credit and hiring your child can slash your tax bill!

Raising a family is one of the most rewarding yet financially demanding responsibilities. The good news? The U.S. tax code includes benefits designed to ease the burden for parents, and savvy families can take advantage of these opportunities to save big during tax season. Two of the most impactful strategies are utilizing the Child Tax Credit and hiring your child if you own a business. These tax-saving moves can lower your liability while helping secure your family’s financial future.

The Child Tax Credit: A Game-Changer for Parents

The Child Tax Credit (CTC) is a well-known benefit available to parents, providing up to $2,000 per qualifying child under age 17. This credit is designed to offset some of the costs associated with raising children, but many families fail to maximize its potential.

Here’s how it works:

Up to $1,700 of the credit is refundable, meaning if your tax liability is low, you may still receive money back as a refund.

The full credit is available to families with a modified adjusted gross income (MAGI) of up to $200,000 for single filers and $400,000 for married couples filing jointly.

The CTC offers immediate relief for parents, but the benefits don’t stop there. If you own a business, you have another powerful tool in your tax-saving arsenal: hiring your child.

Hiring Your Child: A Win-Win for Families

Hiring your child can be one of the most overlooked but lucrative tax strategies if you’re a business owner. Not only does this move teach your children valuable skills and responsibility, but it can also result in significant tax savings for your family.

Here’s Why:

Shift Income to a Lower Tax Bracket

    When you pay your child a reasonable wage for work performed in your business, the income is taxed at their rate, which is likely much lower than yours. For example, if your child earns less than the standard deduction ($15,000 for 2025), they pay no federal income tax on their earnings.

    Make Wages Tax-Deductible

    The wages you pay your child are a deductible business expense, reducing your taxable income. As a result, you lower your overall tax liability while keeping money within your family.

    Avoid Payroll Taxes in Certain Cases

    If your business is a sole proprietorship or a partnership where both partners are the child’s parents, wages paid to your child under age 18 are exempt from Social Security and Medicare taxes.

    Fund Their Future

    The money your child earns can be used to contribute to a Roth IRA or savings for college. By starting early, you set them up for long-term financial success.

    Rules to Keep in Mind

    As with any tax strategy, there are specific rules you must follow to stay compliant with the IRS:

    Work Must Be Legitimate: Your child must perform actual work for your business, such as filing, social media management, or inventory organization. Make sure the work is age-appropriate.

    Pay a Reasonable Wage: The wages you pay should be consistent with what you would pay a non-family employee for similar work. Paying an inflated salary could raise red flags with the IRS.

    Document Everything: Keep detailed records of the hours your child worked, the tasks they performed, and the wages paid. Treat them like any other employee.

    Combining Both Strategies

    When you combine the Child Tax Credit and the strategy of hiring your child, the financial benefits can multiply. For example:

    By hiring your child and paying them up to the standard deduction, you can potentially lower your taxable income by $15,000 for one child in 2025. Imagine the possibilities with multiple children. 

    You still claim the Child Tax Credit for your qualifying child, further reducing your tax liability.

    This dual strategy keeps more money in your pocket while helping your child gain work experience, discipline and save for their future.

    Why Families Should Act Now

    Tax planning is all about timing. By implementing these strategies early in the year, you’ll have time to document expenses, adjust your payroll, and maximize your savings. Waiting until tax season means missing out on potential deductions and credits.

    Additionally, hiring your child can instill invaluable life skills. They’ll learn the importance of earning money, budgeting, and working toward financial goals—all while contributing to the family’s success.

    Brass Tax Moment

    Raising a family can be costly, but the tax code offers opportunities to ease the burden. By taking advantage of the Child Tax Credit and employing your child, you can reduce your tax liability, save money, and build a stronger financial future for your family. This strategy keeps more money in your household and helps your child gain valuable experience along the way—a true win-win!

    About the Author

    Based in Rockwall, Texas, Karena Burgess brings over 18 years of financial experience, including 8 years on active military duty and 10 years with the Department of Defense. As an IRS Enrolled Agent (EA) and Certified Tax Resolution Specialist (CTRS), Karena specializes in solving complex tax issues and helping individuals stay on track with the IRS.

    Contact:

    📧 [email protected]
    📞 (214) 295-7264
    🌐 www.burgesstaxrelief.com


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