Hiring Your Kids in Your Construction Business: A Summer Tax Strategy That Works

Your teenager is home for the summer with nothing to do, and your shop needs cleaning, your trucks need washing, and nobody has touched the tool trailer since March. Put those two facts together and you have one of the most underused tax moves available to a contractor. Hiring your kids in your construction business shifts income off your return and onto theirs, where a lot of it gets taxed at zero.

Most contractors never do this. Either it sounds too good to be legal, or their generalist CPA never brought it up. It's legal, it's been in the tax code for years, and it works especially well for a trade business where there's real physical work a kid can actually do.

How the math works

You already pay tax on every dollar your business earns, at your rate. If your child does real work for the business, you pay them a wage, the business deducts that wage as a payroll expense, and the money lands on someone in a much lower bracket. A child with no other income can earn up to the standard deduction, roughly $15,000, and owe no federal income tax on any of it.

Because those are wages for real work, the "kiddie tax" doesn't apply. That rule targets investment income like dividends and interest, not a paycheck your kid earned washing trucks. So the wage comes off your business income as a deduction and stays largely tax-free to your child.

What counts as real work

The IRS cares about two things: the work is legitimate and age-appropriate, and the pay is reasonable.

A 16-year-old on a remodeling crew's payroll can do plenty: jobsite cleanup, hauling and organizing materials, taking progress photos for your bids and your website, washing and maintaining the trucks, running the company's social media, basic office filing. An 8-year-old billed at $20 an hour to shred paper is a lot harder to defend. Match the job and the wage to the age.

Reasonable pay means what you'd pay anyone else for the same work. If cleanup runs $16 an hour for the rest of your crew, that's the rate for your kid too. Pay them triple that and the deduction gets shaky fast.

Then document it like a real hire, because it is one. A short written job description, a timesheet with actual hours, and a paycheck that goes into the child's own bank account. Run it through payroll the same way you run everyone else. If it looks like a real job on paper, it holds up.

The catch most contractors don't hear about

Here's where who you are changes the answer. If your business is a sole proprietorship or a partnership owned only by you and your spouse, wages you pay your own child under 18 are also exempt from Social Security, Medicare, and federal unemployment tax. That's the full-strength version of the strategy, and it's a real edge.

A lot of our clients run S-corps. Once a contractor's net income climbs, the S-corp election usually makes sense, so most of the growth-minded owners we work with have already made it. If you have, wages to your kids are subject to payroll tax like any other employee's. You still get the income shift and the deduction, which are worth real money on their own, but not the payroll-tax exemption.

There are ways to capture more of the benefit even as an S-corp, and whether they fit depends on how your business is set up. That part is a conversation, not a do-it-yourself project.

Why summer is the time to start

Summer is when this is easiest to defend. The kids are out of school, they're actually around the business, and the work is genuinely getting done. Start now and you can spread the wages across the back half of the year, with real hours behind them, instead of trying to justify one lump payment in December when the auditor asks what your daughter did to earn it.

Set it up before the first paycheck goes out. Write the job description, agree on an hourly rate you could explain to anyone with a straight face, track the hours, and pay from the business account to the child's account. Do that, and you've turned money you were going to hand the IRS into money that stays in your family.

What to do next

Hiring your kids is one of the spots where contractors overpay without realizing it, and it's rarely the only one.

Download the $10K Tax Leak Checklist. It takes about 60 seconds, and it covers the seven areas where contractors leave the most money on the table. Most people find two or three they've never addressed.