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The Overview
Paying your child for legitimate work in your practice moves income out of your top federal bracket and into your child's standard deduction, where the first several thousand dollars are taxed at zero.
Done correctly, the same dollar that would have stayed in your 32% to 37% bracket becomes a deductible business expense for the practice and tax free income for the child.
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​This guide covers who qualifies, the payroll tax distinction between sole proprietorships and S-Corps, how Roth IRAs for minors compound, the documentation that holds up under audit, and the mistakes that get this disallowed.
The Basics
What hiring your children in your practice actually means
You put your son or daughter on the payroll of your business, they do real work, and you pay them a reasonable wage. The wage is a deductible business expense. The child reports it as earned income on their own tax return and uses their own standard deduction before any federal income tax applies.
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The benefit comes from bracket arbitrage. A practice owner physician is often in the 32%, 35%, or 37% federal bracket, plus state tax, plus self employment or FICA tax. The child sits in the 0% bracket up to the standard deduction. Every dollar moved from the parent's bracket to the child's is taxed dramatically less, sometimes not at all.
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This approach is well established in the tax code and used by family businesses across every industry. What makes it fail is execution that generalist preparers and off the shelf payroll software are not built to handle: wage benchmarking, contemporaneous documentation, and integration with the rest of the tax plan.
Quick read on the blog: For a shorter introduction, see Hiring Your Children: A Tax Planning Guide for Physicians. This guide page goes significantly deeper on compliance, wage benchmarking, and the Roth IRA math.
Step by Step
How it works
Step 1
The practice must be a business that can have employees.
Sole proprietorship, partnership, LLC, or S-Corp. A W-2 employed physician with no side business cannot hire their child as a household employee and call it a tax planning move.
Step 2
The child performs real work.
Legitimate, age appropriate, and connected to the business. A 12 year old may be able to shred documents, perform office tasks, and appear in marketing photos. A 14 year old can manage social media or do data entry. A 17 year old can handle bookkeeping support, scheduling, and project work a regular employee would otherwise be paid to do.
Step 3
The wage is reasonable for the work.
What an unrelated person would be paid for the same task. A teenager doing two hours a week of social media work is not earning a $40,000 salary.
Step 4
The child is paid through real payroll.
W-2 at year end, payroll tax filings throughout the year, paycheck deposited into an account in the child's name, and timesheets documenting hours and tasks.
Step 5
The wages are deducted on the business return.
They reduce the practice's taxable income the same way any other employee's wages would.
Step 6
The child files their own return if needed.
If earned income is below the standard deduction and there is no other income, the child generally owes no federal income tax. They may still file to document earned income, which enables a Roth IRA contribution.
Eligibility
Who qualifies
You own a business entity.
Sole proprietorship, single member LLC, partnership, multi member LLC, or S-Corp. A W-2 employed physician with no side business has nothing to deduct the wages against.
The work exists.
Your business genuinely has tasks that need doing. If you would not hire anyone to do this work, your child cannot do it either.
Your child is old enough to perform the task.
There is no specific federal minimum age in the tax code for a parent owned business, but the work has to be physically and developmentally appropriate. In addition, you should review state and local labor laws to ensure compliance. Practically, this becomes worth the effort around age 7 to 11 for simple tasks.
You can run real payroll.
Doc Wealth's physician payroll service handles this for practice owner clients.
Physicians who get the most out of this approach tend to be 1099 physicians with side businesses, practice owner physicians, and physicians who already own an S-Corp or LLC.
The Key Detail
The FICA distinction: sole proprietor vs. S-Corp
This is the single most important detail in the entire approach. The entity structure of your practice changes the payroll tax treatment of your child's wages.
Sole proprietorship or partnership owned solely by the child's parents:
Wages paid to a child under 18 are exempt from Social Security and Medicare tax (FICA). Wages under 21 are exempt from federal unemployment tax (FUTA). If the child's earnings stay under the standard deduction, federal income tax owed is typically zero.
S-Corp or C-Corp:
The FICA exemption does not apply. Wages from an S-Corp are subject to Social Security and Medicare tax on both the employer and employee side. The approach still works (the child still gets their own standard deduction, the wage is still deductible, the bracket arbitrage still applies to federal income tax), but you lose the payroll tax savings.
Exempt under 21
Exempt under 18
$0 up to standard deduction
Sole proprietorship (parent owned)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Partnership (parents only)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Single member LLC (sole prop)
Owed
Owed
$0 up to standard deduction
S-Corp
Owed
Owed
$0 up to standard deduction
C-Corp
FUTA
FICA
Federal Income Tax
Structure
Planning Note
Some physicians address the S-Corp FICA drag by running a separate sole proprietorship side business (a marketing or consulting LLC) and employing children through that entity to preserve the exemption. Whether that works depends on whether the side business has a real and independent purpose. For the full picture, see our physician S-Corp guide.
The Key Detail
The FICA distinction: sole proprietor vs. S-Corp
This is the single most important detail in the entire approach. The entity structure of your practice changes the payroll tax treatment of your child's wages.
Sole proprietorship or partnership owned solely by the child's parents:
Wages paid to a child under 18 are exempt from Social Security and Medicare tax (FICA). Wages under 21 are exempt from federal unemployment tax (FUTA). If the child's earnings stay under the standard deduction, federal income tax owed is typically zero.
S-Corp or C-Corp:
The FICA exemption does not apply. Wages from an S-Corp are subject to Social Security and Medicare tax on both the employer and employee side. The approach still works (the child still gets their own standard deduction, the wage is still deductible, the bracket arbitrage still applies to federal income tax), but you lose the payroll tax savings.
Exempt under 21
Exempt under 18
$0 up to standard deduction
Sole proprietorship (parent owned)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Partnership (parents only)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Single member LLC (sole prop)
Owed
Owed
$0 up to standard deduction
S-Corp
Owed
Owed
$0 up to standard deduction
C-Corp
FUTA
FICA
Federal Income Tax
Structure
Planning Note
Some physicians address the S-Corp FICA drag by running a separate sole proprietorship side business (a marketing or consulting LLC) and employing children through that entity to preserve the exemption. Whether that works depends on whether the side business has a real and independent purpose. For the full picture, see our physician S-Corp guide.
Exempt under 21
FUTA
Exempt under 18
FICA
$0 up to standard deduction
Federal Income Tax
Sole proprietorship (parent owned)
Exempt under 21
FUTA
Exempt under 18
FICA
$0 up to standard deduction
Federal Income Tax
Partnership (parents only)
Exempt under 21
FUTA
Exempt under 18
FICA
$0 up to standard deduction
Federal Income Tax
Single member LLC (sole prop)
Owed
FUTA
Owed
FICA
$0 up to standard deduction
Federal Income Tax
S-Corp
Owed
FUTA
Owed
FICA
$0 up to standard deduction
Federal Income Tax
C-Corp
The Key Detail
The FICA distinction: sole proprietor vs. S-Corp
This is the single most important detail in the entire approach. The entity structure of your practice changes the payroll tax treatment of your child's wages.
Sole proprietorship or partnership owned solely by the child's parents:
Wages paid to a child under 18 are exempt from Social Security and Medicare tax (FICA). Wages under 21 are exempt from federal unemployment tax (FUTA). If the child's earnings stay under the standard deduction, federal income tax owed is typically zero.
S-Corp or C-Corp:
The FICA exemption does not apply. Wages from an S-Corp are subject to Social Security and Medicare tax on both the employer and employee side. The approach still works (the child still gets their own standard deduction, the wage is still deductible, the bracket arbitrage still applies to federal income tax), but you lose the payroll tax savings.
Exempt under 21
Exempt under 18
$0 up to standard deduction
Sole proprietorship (parent owned)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Partnership (parents only)
Exempt under 21
Exempt under 18
$0 up to standard deduction
Single member LLC (sole prop)
Owed
Owed
$0 up to standard deduction
S-Corp
Owed
Owed
$0 up to standard deduction
C-Corp
FUTA
FICA
Federal Income Tax
Structure
Planning Note
Some physicians address the S-Corp FICA drag by running a separate sole proprietorship side business (a marketing or consulting LLC) and employing children through that entity to preserve the exemption. Whether that works depends on whether the side business has a real and independent purpose. For the full picture, see our physician S-Corp guide.
By Age and Role
Reasonable wages by age and role
Reasonable compensation is what an unrelated person would earn for the same work in the same labor market. The benchmark is the prevailing local wage for the task, not the parent's income. Below is a directional framework, not a binding schedule.
Ages 7 to 11
Cleaning, shredding documents, basic filing, marketing photos, organizing supply rooms.
Practical wage range: state minimum wage. Hours are limited.
Ages 12 to 14
Data entry, basic bookkeeping support, social media scheduling, simple graphic work, inventory tracking, mailings, light reception support.
Practical wage range: local minimum wage to a modest premium.
Ages 15 to 17
Full social media management, marketing content, scheduling, patient communications under supervision, bookkeeping data entry, website updates, project work.
Practical wage range: comparable to an entry level part time employee in the same city.
Age 18 and older
Any real role the child is qualified to perform.
The FICA exemption disappears at 18 (sole prop) or 21 (FUTA). The bracket arbitrage still works as long as the child has no other significant income.
Anchor the wage to the work, not the savings target.
A common pattern is to back into a wage by deciding the parent wants to deduct $15,000 and dividing by an hourly rate. The IRS examines this from the other direction: they look at the work, the hours documented, and the rate, and decide whether the wage is defensible. Build up from the work, never down from the deduction.
The Numbers
Real numbers: what the savings actually look like
All examples assume the standard deduction for a single dependent is roughly $14,000 to $15,000 (set annually by the IRS), the wage is reasonable, and full documentation is in place.
Federal income tax savings at 37%: $5,180
State income tax savings at 5%: $700
Self employment tax savings (15.3% on the shifted income): approximately $1,400
FICA and FUTA on the child's wage: $0 (sole prop exemption)
Federal income tax owed by the child: $0
Example 1: Sole proprietorship, one teen on payroll
A physician in the 37% federal bracket with a state rate of 5% pays one 16 year old child a wage of $14,000 for legitimate part time administrative work.
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Annual benefit: in the range of $7,000+.
Federal and state income tax savings: $5,880
FICA on the child's wage (no exemption inside the S-Corp): approximately $2,142 total (employer share deductible)
Federal income tax owed by the child: $0
Needs to be Hidden
Needs to be Hidden
Example 2: S-Corp, one teen on payroll
Same physician, same wage, but the practice is an S-Corp.
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Annual benefit: still meaningful, but materially smaller because of the FICA drag.
Federal income tax savings at 37%: $8,880
State income tax savings at 5%: $1,200
FICA on the children's wages: $0
Federal income tax owed by the children: $0
Needs to be Hidden
Example 3: Sole proprietorship side business, two children
A physician operates a sole proprietorship marketing LLC alongside their S-Corp medical practice. Two children, ages 13 and 16, do legitimate part time work for the marketing LLC. Combined wages: $24,000.
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Annual benefit: in the range of $10,000+.
These figures are not a guarantee. Actual numbers depend on bracket, state, the wages that can be defended, and the entity setup.
Long Term Compounding
The Roth IRA for your child: the long compounding story
The deduction for the parent is the immediate benefit. The Roth IRA for the child is the long term one.
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A child with earned income can contribute to a Roth IRA up to the lesser of their earned income or the annual contribution limit (set annually by the IRS). Contributions are after tax, but since the child owes no federal income tax up to the standard deduction, those dollars are effectively pre tax. Inside the Roth, the money grows tax free for decades, and qualified withdrawals in retirement are tax free.
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The leverage is time. A Roth IRA opened at age 14 has roughly fifty years of compounding before traditional retirement age, producing a balance that is generationally significant from contributions that look modest in any given year.
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Illustrative compounding paths (limits set annually; figures use historical limits and assume a 7% long term return for illustration only):
Balance at Age 65
Years
Annual Contribution
Scenario
Approximately $1.0M+
5
$6,500
Ages 14 to 18 only
Approximately $1.6M+
9
$6,500
Ages 14 to 22 (through college)
Approximately $2.5M+
17
$6,500 (then higher)
Ages 14 to 30, then stops
These are illustrative only. The point is structural: a Roth IRA that starts at 14 instead of 25 changes the order of magnitude of the final balance.
Constraints: The contribution cannot exceed the child's earned income or the annual limit, whichever is lower. A custodial Roth IRA must be opened; the custodian (parent) manages it until the child reaches the age of majority. The child owns the money.
For physicians stacking this with their own retirement planning, see our physician retirement tax guide.
Approximately $1.0M+
Balance at Age 65
5
Years
$6,500
Annual Contribution
Ages 14 to 18 only
Approximately $1.6M+
Balance at Age 65
9
Years
$6,500
Annual Contribution
Ages 14 to 22 (through college)
Approximately $2.5M+
Balance at Age 65
17
Years
$6,500 (then higher)
Annual Contribution
Ages 14 to 30, then stops
Long Term Compounding
The Roth IRA for your child: the long compounding story
The deduction for the parent is the immediate benefit. The Roth IRA for the child is the long term one.
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A child with earned income can contribute to a Roth IRA up to the lesser of their earned income or the annual contribution limit (set annually by the IRS). Contributions are after tax, but since the child owes no federal income tax up to the standard deduction, those dollars are effectively pre tax. Inside the Roth, the money grows tax free for decades, and qualified withdrawals in retirement are tax free.
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The leverage is time. A Roth IRA opened at age 14 has roughly fifty years of compounding before traditional retirement age, producing a balance that is generationally significant from contributions that look modest in any given year.
​
Illustrative compounding paths (limits set annually; figures use historical limits and assume a 7% long term return for illustration only):
Balance at Age 65
Years
Annual Contribution
Scenario
Approximately $1.0M+
5
$6,500
Ages 14 to 18 only
Approximately $1.6M+
9
$6,500
Ages 14 to 22 (through college)
Approximately $2.5M+
17
$6,500 (then higher)
Ages 14 to 30, then stops
These are illustrative only. The point is structural: a Roth IRA that starts at 14 instead of 25 changes the order of magnitude of the final balance.
Constraints: The contribution cannot exceed the child's earned income or the annual limit, whichever is lower. A custodial Roth IRA must be opened; the custodian (parent) manages it until the child reaches the age of majority. The child owns the money.
For physicians stacking this with their own retirement planning, see our physician retirement tax guide.
Documentation
Documentation and compliance requirements
The standard is contemporaneous documentation: records exist at the time the work is done, not reconstructed after a notice arrives.
Required every year:
Written job description. What the role is, what tasks it includes.
Employment paperwork on file. Form W-4, Form I-9, and any state required new hire reporting.
Timesheets or work logs. Date, hours, tasks. Software based or handwritten. A blank wall is not acceptable.
Reasonable wage substantiation. A short memo explaining how the rate was determined, referencing comparable local wages.
Real payroll. Pay periods, paystubs, payroll tax filings, and a W-2 at year end.
Separate bank account in the child's name. Not commingled with the parent's.
Work product, where applicable. Save social media posts, spreadsheets, organized files, or marketing materials the child created.
Annual employer tax filings. Forms 940, 941, W-2, W-3, and state equivalents on time.
The standard the IRS applies
Would an unrelated employee performing the same work, at the same rate, for the same hours, raise any concerns? If no, the wage is defensible.
Need help with payroll setup? Doc Wealth's physician payroll service handles this end to end for practice owner clients.
What to Avoid
Common mistakes that trigger audits and disallowances
01
Paying an unreasonable wage for the age or the work.
A 10 year old earning $30,000 for "filing" is not credible. The work has to justify the wage on its own terms.
02
No documentation of hours or tasks.
A wage with no timesheet, no job description, and no work product looks like a transfer. Transfers are not deductible.
03
No real payroll.
A check from the practice account to the child's name, with no W-2 and no payroll tax filings, is not wage compensation.
04
Depositing the wage into the parent's account.
The child must actually receive and control the wage. Sweeping the money back into the parent's account undermines the entire structure.
05
Using the child's wage to cover parental support obligations.
Parents must provide food, shelter, and basic support. Using the child's wage for those obligations can be recharacterized as a sham transaction. The child's earnings should fund discretionary spending, savings, and Roth IRA contributions.
06
Misclassifying the entity for FICA purposes.
Paying an S-Corp wage to a child under 18 and failing to remit FICA. The exemption does not apply inside an S-Corp.
07
Front loading the wage at year end.
A single December check with no payroll history and no timesheets is the textbook audit trigger.
08
Failing to issue a W-2.
No W-2 means no documented earned income, no Roth IRA contribution, and no defensible deduction.
Why Doc Wealth
How Doc Wealth helps physicians implement this
Implementing this well requires four things working together: the right entity structure, real payroll, defensible documentation, and integration with the rest of the tax plan.
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Our team of Tax Attorneys, CPAs, and Enrolled Agents works exclusively with physicians. We coordinate entity election, payroll setup, wage benchmarking, documentation, and the Roth IRA setup for the child. We also coordinate this with the rest of the plan, so the deduction does not collide with reasonable compensation rules, the QBI deduction, or any other moving piece of the physician tax picture.
Answers
Frequently Asked Questions About Physician PTET
Have a question that's not here? Your discovery call is the right place to ask. 30 minutes, no obligation.
01
At what age can I start paying my child through my medical practice?
01
At what age can I start paying my child through my medical practice?
There is no specific federal minimum age in the tax code for children employed by a parent owned business. The practical floor is when a child can perform real, age appropriate work. For most families, that starts around ages 7 to 10 for simple tasks. Skilled work like social media, data entry, and bookkeeping support typically starts around ages 12 to 14.
02
How much can I pay my child without them owing federal income tax?
02
How much can I pay my child without them owing federal income tax?
A child with no other income can earn up to the standard deduction amount without owing federal income tax. The exact figure is set annually by the IRS. State rules vary.
03
Does the FICA exemption for children under 18 apply to my S-Corp?
03
Does the FICA exemption for children under 18 apply to my S-Corp?
No. The exemption applies only to children under 18 employed by a sole proprietorship or a partnership where both parents are the only partners. Wages from an S-Corp are subject to Social Security and Medicare tax regardless of age. The bracket arbitrage still works inside an S-Corp; the payroll tax savings do not.
04
Can my child contribute to a Roth IRA from these wages?
04
Can my child contribute to a Roth IRA from these wages?
Yes, as long as the wages are real earned income documented by a W-2 and the contribution does not exceed the lesser of the child's earned income or the annual contribution limit. The Roth IRA must be a custodial account until the child reaches the age of majority.
05
Is this worth doing if my practice is an S-Corp?
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Is this worth doing if my practice is an S-Corp?
Often yes. The bracket arbitrage on federal and state income tax still works. What you lose is the payroll tax savings, which can be material at higher wage levels. Some physicians run a separate sole proprietorship side business for family employment, when that business has a real and independent purpose.
Resources
Keep Reading
Take the Next Step
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Hiring your children is one piece of a year round physician tax plan. A call is the right way to find out how it fits with your entity, your bracket, and the rest of your plan.
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This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.