The clean answer
Family payroll is strongest when it looks like normal payroll: real duties, reasonable compensation, time records, actual payment, proper payroll forms, and records showing the work helped the business.
The tax treatment is not the same for every entity. A child paid by a parent's sole proprietorship may have different employment tax treatment than a child paid by a corporation, even if the parent controls the corporation.
Records to gather
- Job description, age-appropriate duties, pay rate support, and work schedule.
- Time sheets, work product, project notes, photos, or other evidence that services were performed.
- Payroll records, Forms W-4 and W-2, state registrations, and withholding records.
- Entity documents showing whether the business is a sole proprietorship, partnership, corporation, or LLC taxed as another entity.
Red flags
Paying a child without actual services or at a rate that is not reasonable for the work.
Using family payroll to move money without payroll filings, W-2s, or state compliance.
Assuming child payroll tax exceptions apply to corporations or mixed-owner partnerships without checking the rules.
Missing records because the worker is related to the owner.