Family Employment Compliance Checklist
Hiring Your Kids Through Your Business — The Right Way
The RVA Accountant, PLLC
Purpose: Use this checklist to ensure your family employment arrangement is properly structured, documented, and defensible. Incomplete setup is the #1 reason these arrangements create audit friction.
Tax Year Reference: 2026 (Standard deduction: $16,100 single filer; Dependent standard deduction: earned income + $450, minimum $1,350)
1
Pre-Setup Analysis
Confirm business entity type and payroll tax implications
Schedule C / Single-member LLC / Partnership / S-Corp / C-Corp
Review payroll tax exemption eligibility (if applicable)
FICA exemption for children under 18 generally applies only to sole proprietorships and qualifying parent-only partnerships — not S-corps or C-corps
Verify child is a dependent for tax purposes (or document status)
Affects standard deduction calculation
Entity Quick Reference:
| Entity Type | Child Under 18 | FICA Exempt? | FUTA Exempt (Under 21)? |
|---|---|---|---|
| Schedule C / Sole Prop | Yes | Generally Yes | Generally Yes |
| Parent-Only Partnership | Yes | Generally Yes | Generally Yes |
| S-Corp or C-Corp | Any age | No | No |
2
Job Design & Documentation
Define specific, business-related job duties
Must be work the business actually needs — not household chores
Create written job description (1 page is sufficient)
Include: job title, duties, reporting structure, expected hours
Set reasonable hourly rate based on local market
Research comparable rates for similar work in your area
Establish consistent work schedule
Document expected hours per week (e.g., 5-10 hours during summer)
Verify job duties are age-appropriate
Consider physical requirements, complexity, and legal restrictions
Common Legitimate Job Duties:
Office cleaning, shredding, scanning, filing • CRM updates, basic admin • Product labeling, inventory counts • Social media assistance (photos, captions) • Website tasks (uploading posts, formatting) • For real estate: unit prep, supply runs, landscaping coordination
Office cleaning, shredding, scanning, filing • CRM updates, basic admin • Product labeling, inventory counts • Social media assistance (photos, captions) • Website tasks (uploading posts, formatting) • For real estate: unit prep, supply runs, landscaping coordination
3
Payroll & Tax Form Setup
Required Employee Forms
Form W-4 completed and on file
Federal withholding elections; child may claim "exempt" if they expect $0 tax liability
Form I-9 completed with acceptable documents
Work eligibility verification — required even for family members
State withholding form completed (VA-4 for Virginia)
Coordinate with your payroll provider for state-specific requirements
Payroll System Setup
Add child as employee in payroll system
Do not process as 1099 contractor if facts indicate employee status
Configure correct tax withholding settings
Including any applicable family employee exemptions based on entity type
Set up direct deposit or payroll check issuance
Payments must flow through payroll — not personal transfers
Verify child has own bank account (recommended)
Custodial account or joint account with parent is acceptable
Classification Warning: Most children working inside a parent-run business are W-2 employees (not 1099 contractors) because the business controls what they do and how they do it. Misclassification creates payroll tax exposure.
4
Youth Employment Compliance (Minors Under 18)
Review federal child labor laws (FLSA)
Restrictions vary by age (14-15 vs. 16-17) and type of work
Review Virginia youth employment requirements
Virginia may require Employment Certificate for certain ages
Confirm job duties are permitted for child's age
Some duties are prohibited for workers under 16 or 18
Confirm work hours comply with restrictions
School-year limits differ from summer; varies by age
Obtain required work permits/certificates (if applicable)
Retain copies on file with other employment documents
5
Ongoing Documentation & Recordkeeping
Time & Work Documentation
Maintain time sheets for each pay period
Date, hours worked, tasks performed — signed by child
Keep samples of work product
Before/after photos, posts drafted, files organized, etc.
Document rate reasonableness
Job postings, wage surveys, or notes showing comparable pay
Payroll Records
Retain all payroll reports and pay stubs
Keep for at least 4 years (IRS) — some states require longer
File and retain W-2 / W-3 copies
Issue W-2 to child by January 31 following the tax year
Keep proof of payment (bank records, cancelled checks)
Must show payments from business account to child
6
Year-End & Tax Filing
Calculate total wages paid for the year
Verify against payroll reports
Issue W-2 to child by January 31
File W-2/W-3 with SSA by deadline
Determine if child needs to file federal return
Generally required if earned income exceeds standard deduction or withholding to reclaim
Determine if child needs to file Virginia return
May be required to claim refund of withholding
Deduct wages as business expense on business return
Schedule C, Form 1120-S, etc. depending on entity
7
Bonus: Roth IRA Funding (Optional)
Confirm child has earned income from wages
Roth IRA contribution cannot exceed earned income for the year
Open custodial Roth IRA in child's name
Parent serves as custodian until child reaches age of majority
Fund Roth IRA (up to $7,500 for 2026, or earned income if less)
Parent can gift funds to child who then contributes — document the flow
Select age-appropriate investments
Low-cost index funds are typically recommended for long time horizons
Roth IRA Power: A $7,500 contribution at age 15, growing at 7% annually, becomes approximately $120,000+ by age 65 — all tax-free in retirement.
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Common Mistakes to Avoid
Paying for household chores (not business work)
Mowing the lawn at home ≠ business expense
Overpaying for simple tasks
$30/hour for basic filing looks like a disguised gift
Skipping payroll and "just transferring money"
No payroll record = weak position if questioned
Using 1099 when facts indicate W-2 employment
Misclassification creates payroll tax exposure
Assuming S-corp gets same payroll tax breaks as Schedule C
FICA exemption for minor children generally does not apply to corporations
Ignoring youth employment hour/duty restrictions
Federal and state rules still apply to family businesses
Need Help Setting This Up?
Let's review your entity type and design a family payroll plan that fits your situation.
Book a planning call: thervaaccountant.com/contact-us