There’s a tax strategy that works well for dental practice owners, costs almost nothing to set up, and routinely gets done wrong. Hiring your minor children in your practice is completely legal under the Internal Revenue Code, and when it’s structured correctly, it can move income out of your higher tax bracket and into your child’s, where the standard deduction likely wipes out the tax entirely. When it’s structured incorrectly, it invites an audit and gets unwound.
The IRS isn’t opposed to family employment. What the IRS is opposed to is phantom employment: a child on the payroll doing nothing, paid above market, or claimed through the wrong entity type. The line between a legitimate hire and a paper transaction is narrower than most people think, and the practice entity structure you operate under determines whether the biggest tax benefit is even available to you. Getting it right starts with what the IRS actually requires.
What Does The IRS Actually Require When You Hire Your Child?
The IRS requires three things for a family employment arrangement to hold up: the work must be real, the wage must match what you’d pay anyone else for the same job, and the child must actually receive the money. All three have to be present. A W-2 with no corresponding time records or job description is the kind of paper trail that falls apart quickly under scrutiny.
Real work can include social media content creation, filing, answering phones, cleaning the waiting area, data entry, or administrative projects. The job description should match the child’s age and ability. You should keep a written record of hours worked, the tasks completed, and the pay rate, the same documentation you’d maintain for any employee. An approximate $15 to $20 per hour rate for basic administrative work is a reasonable market rate for most of the country. Paying a 13-year-old $75 per hour for “marketing” won’t survive review. Once the job itself is defensible, the next question is which payroll taxes you can legitimately skip.
The FICA Exemption Dentists Most Often Miss, And When It Applies
The most valuable part of this strategy is a payroll tax exemption that most dentists never use because they’re operating under the wrong entity structure. Under Internal Revenue Code Section 3121(b)(3)(A), wages paid to a child under 18 by a parent are exempt from Social Security and Medicare taxes (commonly called FICA) when the employer is a sole proprietorship or a partnership owned entirely by the child’s parents.
In practical terms: if your practice is structured as a sole proprietorship or a single-member LLC taxed as a sole proprietorship, and you hire your child who is under 18, neither you nor your child owes Social Security (6.2%) or Medicare (1.45%) on those wages. That’s a 15.3% combined payroll tax savings on every dollar you pay your child, on top of the income tax shift. Children under 21 also qualify for a Federal Unemployment Tax (FUTA) exemption under IRC Section 3306(c)(5), removing that cost as well. The catch is that the exemption depends on how your practice is set up, which is where most dentists lose it.
Why Your Practice Entity Type Changes Everything
The FICA exemption only applies to sole proprietorships and certain partnerships. It doesn’t apply to S-corporations or C-corporations. If your dental practice is structured as an S-corp, wages you pay your child are subject to normal payroll taxes, including FICA. The income tax shifting benefit still works in an S-corp (the wages are still deductible to the practice and income to the child), but you lose the payroll tax savings that make the strategy particularly compelling.
Many dental practice owners operate as S-corps specifically to reduce self-employment tax on their own owner compensation, which makes complete sense. But if a parent-sole proprietor structure isn’t your situation, the math on hiring your kids changes meaningfully. This is the kind of scenario where your practice entity structure and your family tax strategy need to be looked at together. Two separate advisors rarely surface this interaction on their own. Which brings us to the number everyone asks about first: how much a child can actually earn tax-free.
How Much Can A Child Earn Tax-Free In 2026?
For 2026, the standard deduction for a single filer is $16,100, per the IRS (Rev. Proc. 2025-32). A child who earns up to that amount in wages owes zero federal income tax on it, because the standard deduction covers it entirely.
Wages above that line are taxed at the child’s own marginal rate, which starts at 10% for 2026, rather than the top rates the same money would face in your hands. Even a child earning $18,000 in a year has only the slice above the standard deduction taxed, and at that lowest rate.
One important note: the Kiddie Tax rules under IRC Section 1(g) apply to unearned income (investment income, dividends) for children under 18, and for certain 18-year-olds and full-time students under 24 who don’t provide their own support. They don’t apply to earned wages. Wages from legitimate employment are taxed at the child’s own rate, not the parent’s. A common misconception is that the Kiddie Tax eliminates the benefit of hiring your children. It doesn’t apply to the wages they earn from working.
What Jobs Actually Make Sense For A Dental Practice?
The jobs need to be real, age-appropriate, and genuinely useful to the practice. For a practice with any social media presence, a teenager who creates Instagram content, films short videos for patient education, or helps manage the practice’s online review response queue is doing legitimate, marketable work. Administrative support is appropriate for older children: filing patient paperwork (with HIPAA-compliant protocols in place), helping with supply inventory, cleaning and organizing non-clinical spaces, or assisting with billing data entry.
What doesn’t work: vague “consulting” roles, paid attendance at practice events without specific tasks, or any work that involves unsupervised access to patient protected health information. Dental practices are subject to HIPAA privacy rules, and a child employee’s access to patient records should be treated the same way you’d treat any staff member’s access. Keep the role in the administrative and marketing lane, document it carefully, and the job is entirely defensible.
Payroll Setup And Recordkeeping You Actually Need
Hiring your child isn’t an informal arrangement. It requires the same payroll infrastructure as any other employee: the child needs to complete a Form W-4, you need to issue a Form W-2 at year-end, and the wages need to run through your payroll system with proper records. The IRS treats a handshake and a cash payment the same way it treats no payment at all. Neither holds up under examination.
Keep a time log (even a simple spreadsheet) that records the date, hours worked, and tasks completed for each pay period. Set a regular pay schedule and deposit the wages into an account in the child’s name. If the amount is meaningful, consider directing a portion into a Roth IRA for the child. Earned income from employment qualifies as Roth IRA contribution income, even for minors, up to the annual contribution limit ($7,500 in 2026 per the IRS). That’s a compounding head start that’s genuinely difficult to replicate in later years.
How This Fits Into A Holistic Dental Practice Tax Strategy
Hiring your children is one piece of a broader family income-shifting approach, not a standalone fix. It sits alongside the ordinary staffing question every owner faces, which we cover separately in whether you can afford your next dental practice employee. On its own, a child earning $12,000 a year saves meaningful dollars in a 32% or 37% bracket. Layered alongside a well-structured retirement plan, an S-corp election reviewed against your actual compensation level, and coordinated investment planning, the cumulative effect becomes much more significant over a career.
This is also the kind of planning that works better when your tax advisor and your financial advisor are in the same conversation. The entity structure choice that drives the FICA exemption, the retirement plan contribution strategy, the Roth IRA for your child: these aren’t separate decisions. They interact. A dental practice owner who has a CPA, a financial planner, and a retirement advisor who never speak to each other is unlikely to have this sequence optimized.
For a comprehensive look at how tax planning, retirement strategy, and practice structure fit together, Core Advisors’ dental tax planning services are built specifically around the financial reality of running a dental practice, not just filing a return.
Common Mistakes That Get This Strategy Unwound
The most common errors are predictable: paying wages without W-2s, paying above-market rates for undefined work, employing a child in an S-corp and expecting the FICA exemption that only applies to sole proprietorships, and failing to keep any employment records at all. Each of these invites the IRS to reclassify the payments as disguised gifts rather than wages, at which point the deduction disappears and any prior returns become exposed.
A slightly less obvious mistake is underutilizing the strategy. Some dentist-parents hire their child at $3,000 to $4,000 a year when the child could legitimately earn up to the full standard deduction tax-free with a realistic workload. If the practice genuinely has work the child can do, capping the wages artificially leaves real tax savings unrealized. The guardrails here are market rate and documented hours, not an arbitrary low number.
Ready to put a plan together that actually fits your practice structure? Core Advisors works with dental practice owners on tax strategy, retirement planning, and wealth management under one roof, so the decisions that interact get made together. Learn more about our retirement planning for dentists or reach out directly to start the conversation.
This article is for educational purposes only and does not constitute tax, legal, or investment advice. Figures cited are for the 2026 tax year unless noted and are subject to change. Consult your tax and financial advisor about your specific situation before acting on any strategy discussed here.
