Kids Coming Home from College? Turn Summer Break Into a Tax Break

For many families, summer break means welcoming college students back home. It’s a time for reconnection, rest, and... tax planning? Absolutely.

If you're a small business owner and your child is coming home for the summer, there's a smart way to turn their time off into a tax-saving opportunity: hire them to work in your business. Not only can this help your student build valuable work experience, but it can also reduce your tax liability and help fund next year’s tuition.

Let’s break down how this works—and how you can take full advantage of the benefits while staying within IRS guidelines.

Why Hiring Your Child Makes Financial Sense

When done correctly, employing your college-age child in your business can create a win-win-win situation:

  • They gain experience.

  • You receive a tax deduction.

  • Your family keeps more money overall—legally.

Here’s how the math (and tax rules) can work in your favor.

Wages You Pay Are Deductible

Under U.S. tax law, wages you pay to employees for actual work performed are deductible business expenses. That includes wages paid to your own child, as long as the work is legitimate and the pay is reasonable.

Let’s say you pay your college-age child $10,000 over the summer. That $10,000 is now a deductible expense for your business. If you’re in a 24% tax bracket, that deduction could save you roughly $2,400 in federal taxes. That’s money that stays in your family instead of going to the IRS.

Your Child May Owe Little or No Income Tax

Here’s where it gets even better: for the 2025 tax year, the standard deduction for single filers is $15,000. That means your child can earn up to $15,000 and likely owe no federal income tax—as long as they don’t have significant additional income.

And since this is earned income, it’s not subject to the "kiddie tax" rules that apply to unearned income (like investment income). Your child gets to keep more of what they earn, and you get the tax deduction. It’s a legitimate and powerful strategy for families.

What About Payroll Taxes (FICA)?

If your business is a sole proprietorship (or a partnership where each partner is a parent of the child), and your child is under the age of 18, you do not need to withhold or pay Social Security and Medicare taxes (FICA) on their wages. This rule is a significant tax advantage and applies only in these specific family business situations.

However, if:

  • Your child is 18 or older, or

  • Your business is a corporation or an LLC taxed as a corporation,
    then FICA taxes do apply, just as they would for any other employee.

Still, even with FICA included, the ability to shift income from your higher bracket to your child’s lower (or zero) bracket often results in a meaningful net savings.

Real Work, Reasonable Pay

To stay on the right side of the IRS and protect your deduction:

  1. Assign real work. Your child should be performing age-appropriate tasks that directly support your business—think filing, inventory, marketing assistance, bookkeeping, social media support, or customer service.

  2. Pay fair market wages. Compensation must reflect what you would reasonably pay a non-family member for the same work.

  3. Keep good records. Use timesheets, maintain a job description, and process payroll through a proper payroll system. Issue a W-2 at year-end.

  4. Avoid treating them as an independent contractor. If they are working under your direction and using your tools, they must be classified as employees.

Use the Wages to Pay Tuition—or Jumpstart Retirement

Once your child earns this money, they can use it for next year’s tuition, books, room and board, or other qualified education expenses. You’ve essentially transferred funds from your business to your child in a tax-efficient way.

But what if you don’t need help with tuition? There’s another powerful option: a Roth IRA. If your child has earned income and is under the income limits, they can contribute up to $7,000 (for 2025) into a Roth IRA. This can give them decades of tax-free growth on their savings, even if they only contribute for a few summers during college.

Watch Out for These Common Mistakes

While this is a legal and effective tax strategy, there are a few pitfalls to avoid:

  • Don't inflate job duties or wages. Be honest and reasonable in how you describe the work and what you pay for it.

  • Don’t forget to withhold taxes if required. Older children and corporate employers must follow all payroll rules.

  • Coordinate with your tax advisor. If you’re also claiming education credits or other family-based tax benefits, proper coordination is key to maximizing overall savings.

It's a Teaching Moment—And a Tax Break

Hiring your college-age child over the summer isn’t just good for your tax return. It’s a way to teach them real-world skills, build financial responsibility, and start preparing them for the future—whether that’s next semester or long-term retirement planning.

And when structured correctly, it can help your business save money while keeping more wealth within the family.

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