Quick Answer

How much does it cost to hire my kids through my business in Arizona is a question that comes down to a few small setup costs, some ongoing payroll compliance, and the value of the tax savings you unlock. In plain English: the direct out-of-pocket cost is usually low, often between $0 and a few hundred dollars for payroll setup, while the tax savings can run into the thousands each year. When done right, hiring your children shifts income from your higher tax bracket into their much lower one, and it can eliminate federal payroll taxes entirely if your business is structured correctly.

This information is current as of 9/9/2026. Tax laws change frequently. Verify updates with the IRS or FTB if reading this later.

Why Arizona Business Owners Ask About Hiring Their Kids

If you run a business in Arizona and you have children, you have probably heard that putting them on payroll is one of the cleanest tax strategies available to a family. It sounds almost too good to be true. Pay your kids, deduct their wages, and watch your taxable income shrink. The reality is that this strategy is completely legitimate when you follow the rules, but the phrase people search for most often is a cost question, not a savings question. So let’s answer it directly and completely.

The truth is that the cost of hiring your kids is rarely the barrier. The real barrier is doing it correctly. A sloppy setup can turn a beautiful deduction into an audit headache. A clean setup turns thousands of dollars that would have gone to the IRS into a Roth IRA for your teenager or a college fund that grows tax-free for decades. That is the trade you are really evaluating.

Arizona has no special state prohibition on family employment, which makes this even more attractive for local business owners. Whether you run a Scottsdale marketing agency, a Mesa construction outfit, a Tempe e-commerce store, or a Chandler medical practice, the federal mechanics work the same. The state simply follows along without adding roadblocks.

The Real Cost Breakdown

Let’s put actual numbers to the setup and ongoing costs so you know exactly what you are committing to before you decide.

Cost Item	Typical Range	Frequency
Payroll software or service	$0 to $50/month	Ongoing
Employer ID number (EIN)	Free	One time
Bookkeeping for wage tracking	$0 to $100/month	Ongoing
Professional setup guidance	$300 to $1,500	One time
W-2 and payroll filings	$0 to $150/year	Annual

Key Takeaway: The all-in cost of hiring your kids in Arizona often lands between $300 and $2,000 in the first year, while the potential tax savings for a business owner paying a child $15,000 can exceed $4,000 in federal tax alone.

How Much Does It Cost to Hire My Kids Through My Business in Arizona vs What You Save

Here is where the math turns in your favor. The question of how much it costs to hire your children is only half the equation. The other half is what you keep. Let’s walk through the mechanics so you understand exactly why this strategy is worth the small setup expense.

When you pay your child a legitimate wage for real work, three things happen at once. First, your business deducts that wage as an ordinary and necessary business expense, which lowers your taxable business income. Second, your child receives that income and pays little to no federal income tax on it because of the standard deduction. Third, if your business is a sole proprietorship or a partnership owned solely by the parents, wages paid to a child under 18 are exempt from Social Security and Medicare taxes, and wages paid to a child under 21 are exempt from federal unemployment tax. That is a triple win that almost no other strategy delivers.

For the 2026 tax year, the standard deduction for a single filer means your child can earn a meaningful amount of wage income and owe zero federal income tax on it. So if you are in the 32 percent federal bracket and you move $15,000 of income to a child who pays nothing, you have effectively saved roughly $4,800 in federal tax on that shifted income. Run your own numbers through a small business tax calculator to see how the shift affects your specific profit level.

Step-by-Step: How to Hire Your Child Correctly

1. Confirm the work is real – Your child must perform legitimate, age-appropriate tasks. Think filing, shredding, social media content, cleaning the office, modeling for product photos, or data entry.
2. Set a reasonable wage – Pay what you would pay a stranger for the same work. A 10-year-old cannot reasonably earn $40 an hour. A 16-year-old doing graphic design might.
3. Get an EIN if you don’t have one – Apply free at IRS.gov. This takes about five minutes.
4. Put them on formal payroll – Issue real paychecks, not cash from your wallet. Use payroll software so the paper trail is clean.
5. Keep timesheets – Document hours worked and tasks completed. This is your audit shield.
6. Issue a W-2 at year end – Even if no tax is withheld, the W-2 documents the wages properly.
7. Open a custodial Roth IRA – This is optional but powerful. Earned income makes your child eligible to contribute.

Pro Tip: The single most common mistake is paying an unreasonable wage. The IRS scrutinizes family employment closely, so keep your child’s pay defensible. If you would not pay an unrelated teenager that amount for that work, do not pay your child that amount either.

KDA Case Study: Arizona E-Commerce Owner Turns Family Payroll Into Real Savings

Marcus runs a Shopify store out of his home in Gilbert, Arizona. His single-member LLC generates about $180,000 in net profit, which puts him solidly in a high federal bracket plus Arizona state tax. He came to us frustrated that he was writing enormous checks to the IRS while his two teenage kids, ages 14 and 16, sat around all summer. He had heard about hiring his children but assumed it was complicated and expensive.

We reviewed his operation and found plenty of legitimate work for the kids. The 16-year-old had real skill with photo editing and could handle product photography and listing creation. The 14-year-old could manage inventory counts, package orders, and organize the storage area. We set up a formal payroll system for about $40 a month, documented job descriptions, and established defensible hourly rates.

Over the year, Marcus paid his older child $14,000 and his younger child $9,000, for a total of $23,000 in wages. Because his LLC was taxed as a sole proprietorship and the children were under 18, those wages were exempt from Social Security, Medicare, and federal unemployment tax. The wages became a business deduction, shifting $23,000 out of his high bracket. His combined federal and Arizona tax savings came to roughly $7,600. He paid KDA $3,000 for the setup, planning, and compliance work, delivering a first-year return of about 2.5x. On top of that, both kids started custodial Roth IRAs that will grow tax-free for decades.

Ready to see how we can help you? Explore more success stories on our case studies page to discover proven strategies that have saved our clients thousands in taxes.

Entity Structure Changes Everything

This is the detail most online articles gloss over, and it dramatically affects both your cost and your savings. The payroll tax exemption for hiring your children depends entirely on how your business is structured. Getting this wrong can cost you thousands in unnecessary payroll taxes.

Sole Proprietorship or Parent-Owned Partnership

This is the gold standard for hiring your kids. When your business is a sole proprietorship, or a partnership where the only partners are the child’s parents, wages paid to a child under 18 escape Social Security and Medicare taxes. Wages to a child under 21 also escape federal unemployment tax. This is spelled out clearly in the IRS guidance on family employment. You can review the details in IRS Family Help guidance.

S Corporation or C Corporation

Here is the catch. If your business is an S Corp or C Corp, that magical payroll tax exemption disappears. The corporation is treated as a separate legal person, so wages to your child are subject to the same payroll taxes as any other employee. You still get the income-shifting benefit and the wage deduction, but you lose the payroll tax exemption. For many Arizona business owners running an S Corp, this is a surprise worth planning around.

Business owners weighing entity structure decisions like this benefit from working with a team that understands the full picture. Our guidance for business owners covers how entity choice interacts with family employment, payroll setup, and long-term tax planning.

The Family Management Company Workaround

If you operate an S Corp and still want the payroll tax exemption, there is a legitimate structure. You create a separate family management company as a sole proprietorship or parent-owned partnership. Your S Corp pays that management company for services, and the management company employs your children. This preserves the payroll tax exemption while keeping your primary business as an S Corp. This is advanced planning and should never be attempted without professional guidance, because a sloppy version invites scrutiny.

Bottom Line: A sole proprietor can hire a child under 18 with zero payroll tax. An S Corp owner pays roughly 15.3 percent in payroll tax on the same wages unless they build a family management company structure.

What Work Can Your Children Actually Do?

The number one audit trigger in this strategy is paying for work that never happened or work a child could not plausibly perform. The IRS does not care that a task is small. It cares that the task is real, age-appropriate, and reasonably compensated. Here are defensible roles by age range.

Ages 7 to 11

• Modeling for product photos and marketing materials
• Basic cleaning and organizing of a home office or workspace
• Shredding documents and simple filing
• Stuffing envelopes and preparing mailers

Ages 12 to 15

• Social media content creation and posting
• Data entry and spreadsheet updates
• Inventory counts and stock organization
• Packaging and shipping orders
• Basic customer email responses

Ages 16 to 18

• Graphic design and video editing
• Website updates and light coding
• Bookkeeping data entry
• Managing ad campaigns
• Handling scheduling and administrative coordination

Match the wage to the work. A 9-year-old modeling for a few product shoots might reasonably earn a modest amount over the year. A 17-year-old running your entire social media operation might earn far more. The closer your child’s pay tracks what you would pay a stranger, the stronger your position.

Special Situations and Edge Cases

This is where competitor articles go quiet, so let’s cover the scenarios that trip up Arizona families.

What If My Child Earns Above the Standard Deduction?

If you pay your child more than the standard deduction allows, the excess becomes taxable to them at their own low rate, which is still far below yours. Even then, the strategy usually wins. And your child can shelter more income by contributing to a traditional IRA or a Roth IRA depending on their goals.

What About the Kiddie Tax?

Good news here. The kiddie tax applies to a child’s unearned income like dividends and interest. It does not apply to earned income from real work. Wages your child earns from your business are earned income, so the kiddie tax rules do not sweep those wages into your bracket.

What If I Have a Home-Based Business?

Many Arizona entrepreneurs run home-based operations, and this strategy works beautifully for them. The key is documentation. Since the work happens at home, keep even more detailed timesheets and task logs, because the line between chores and legitimate business work must stay crisp. Cleaning your kid’s bedroom is not deductible. Cleaning your dedicated home office is.

Can I Fund a Roth IRA With Their Wages?

Yes, and this is one of the most overlooked wins. Earned income makes your child eligible to contribute to a Roth IRA. A teenager who contributes even a few thousand dollars a year for several years can build a tax-free retirement account that compounds for 50 years or more. This is generational wealth built from wages that were already going to be paid. Understanding how those contributions grow over time is easier when you use a retirement savings calculator.

Common Mistakes That Turn Savings Into Penalties

Every strategy has a wrong way to do it. Here are the errors that turn a clean deduction into an audit problem.

• Paying in cash with no records – Without a paper trail, you have nothing to defend. Always use formal payroll.
• Unreasonable wages – Paying a 10-year-old $30,000 for light filing is a red flag the IRS will pull.
• No actual work performed – Ghost employment is fraud. The work must be real.
• Ignoring entity rules – Assuming an S Corp gets the payroll tax exemption is a costly mistake.
• Skipping the W-2 – Even with no tax withheld, the W-2 documents the arrangement properly.
• Mixing personal chores with business work – Only genuine business tasks qualify.

Red Flag Warning: If you cannot produce a job description, timesheets, and formal payroll records during an audit, the IRS can disallow the entire deduction and add penalties and interest on top. Documentation is not optional. It is the entire foundation of the strategy.

Frequently Asked Questions

Do I have to withhold taxes from my child’s paycheck?

If your business is a sole proprietorship or parent-owned partnership and your child is under 18, you generally do not withhold Social Security and Medicare. You may not need to withhold federal income tax either if their wages stay under the standard deduction. You still issue a W-2 to document everything.

What is the minimum age to hire my child?

There is no strict federal minimum age for hiring your own child in your own business, but the work must be genuinely age-appropriate. Younger children are typically limited to modeling and very simple tasks that a court and an IRS auditor would find believable.

Does Arizona charge state tax on my child’s wages?

Arizona follows the general federal framework. Your child’s wages are subject to Arizona income tax rules, but if their total income is low, their state tax liability is often minimal or zero. The wage deduction still reduces your own Arizona taxable business income.

Can I hire my kids if I have an LLC?

Yes, but how your LLC is taxed matters. A single-member LLC taxed as a sole proprietorship gets the payroll tax exemption for children under 18. An LLC that elected S Corp taxation does not, unless you use a family management company structure.

How do I prove the work was real if I get audited?

Keep job descriptions, timesheets, samples of the work product like photos or social posts, and formal payroll records. The stronger your documentation, the faster an audit resolves in your favor. Our audit representation services can help if you ever receive a notice.

Is there a limit to how much I can pay my child?

There is no hard legal cap, but there is a practical one. The wage must be reasonable for the work performed. Overpaying is the fastest way to lose the deduction. Pay market rate and you stay safe.

Can my child contribute to a Roth IRA from these wages?

Absolutely. Earned income qualifies your child for Roth IRA contributions, and starting that account young is one of the most powerful long-term wealth moves available to a family.

Book Your Family Payroll Strategy Session

If you are running a profitable Arizona business and your kids are old enough to help, you may be leaving thousands of dollars on the table every year you wait. The setup cost is small, but the mistakes are expensive, and the difference between a clean strategy and a shaky one is professional guidance. Let our team build a defensible, audit-ready family payroll plan tailored to your entity structure and your children’s ages. Click here to book your consultation now.