Why and How to Legally Pay Your Children for Work: A Practical Guide

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How and Why to Pay Your Kids

Getting Started • 4 min read

How (and Why) to Put Your Kids on the Payroll

We’ve all heard the observation that children are expensive (because they certainly can be), but what if providing them with money was actually one of the most effective parenting strategies you could implement?

I understand this might sound counterintuitive. However, whether it’s for household tasks, a weekly allowance, or assisting with the family business, putting some cash in their hands represents a low-risk method to teach significant life lessons. And if you approach it strategically, it can also function as a powerful wealth-building strategy for their future.

Why bother paying them?

Consider this as “Financial Literacy 101.” When children have their own money, important cognitive processes begin to activate:

  • They learn to budget: Suddenly, that desired toy doesn’t appear as necessary when it’s their money being spent.
  • They learn patience: Saving up for something substantial teaches delayed gratification more effectively than any lecture could.
  • It’s a safe space to fail: I’d much rather my child waste $5 on inexpensive slime now than make a $5,000 credit card mistake when they’re 25 years old.

Option 1: The “Chore Economy” (Casual)

This approach is excellent for establishing that simple “effort equals reward” connection.

  • How to do it: Keep it straightforward. Perhaps taking out the trash is worth $1, but raking the entire yard is a $5 job.
  • Pro-tip: Don’t monetize everything. You don’t want them requesting payment just to put their own plate in the dishwasher. Some activities we simply do because we’re part of a family unit.

Option 2: Allowance (No Strings Attached)

Some parents prefer providing a set weekly amount simply to teach budgeting skills, regardless of whether chores are completed.

  • The Rule of Thumb: A common formula is $1 per year of age. So, your 7-year-old receives $7 per week.
  • The Hard Part: If they spend it all on Monday and want candy on Wednesday, you have to be firm and say “sorry.” It’s tough love, but it works effectively!

Option 3: The “Household Employee” Strategy (For Non-Business Owners)

Here is the game-changing approach. Even if you don’t own a company, the IRS states that you can hire your children to perform domestic work around your home—such as babysitting siblings, mowing the lawn, or deep cleaning—and treat them as Household Employees.

  • The “Magic” Loophole: If you pay your own child (under age 21) for domestic work, you generally don’t have to pay Social Security or Medicare taxes on their earnings.
  • The Benefit: Because this counts as earned income, they become eligible to open a Custodial Roth IRA, allowing you to jumpstart their retirement savings with tax-free growth.

Option 4: The Family Business Hack (For Business Owners)

If you do own a business, you have an even more significant opportunity. You can legally hire your children to perform age-appropriate work for your company (such as stuffing envelopes, cleaning the office, or providing social media assistance).

  • The Win-Win: They gain real work experience and earned income (Roth IRA eligible!), and your business receives a tax deduction for their wages.
  • The Catch: Just make sure the compensation is reasonable—no paying them $100 per hour to “consult” on crayon colors.

Keeping it all straight (and IRS-proof)

If you want to unlock those Roth IRA benefits—whether through household work or a family business—you can’t simply hand over cash and hope for the best. The IRS requires proof that the work was legitimate, the pay was fair, and the hours were properly tracked.

That is exactly why we built Roth Wizards.

Roth Wizards isn’t just a chore chart; it’s a comprehensive record-keeping tool designed to help you organize your children’s pay in a legally compliant manner. It tracks tasks, hours, and payments so you maintain a solid paper trail. Whether you are paying them wages from your family business or simply for mowing the lawn, Roth Wizards ensures you have the documentation you need to confidently contribute to their Roth IRA.

The Bottom Line

However you choose to approach it, paying your children is an investment in their future financial confidence. Start small, stay consistent, and use the right tools to transform that pocket money into a substantial nest egg!