Last updated: March 2026
Yes. You keep the Child Tax Credit even if your child works for your business and earns income.
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This is a quick one, but it matters -- because I've talked to parents who avoided hiring their kids specifically because they thought they'd lose the credit. Let's clear this up fast.
The Child Tax Credit Has Its Own Rules
The Child Tax Credit (CTC) is based on your child's age, your relationship to them, and your income level. For 2026, you can receive up to $2,000 per qualifying child under age 17.
The qualifying criteria:
- Child is under 17 at the end of the tax year
- Child is your dependent (see our article on dependent status)
- Child has a valid Social Security number
- Child lived with you for more than half the year
- You provide more than half of the child's support
- Your income is below the phaseout threshold ($200,000 single / $400,000 married filing jointly)
Notice what's missing: any mention of the child's income.
Your child can earn $5,000, $10,000, or even $16,100 from your business, and it has zero impact on your eligibility for the Child Tax Credit. The credit is based on YOUR income and the child's age and relationship -- not whether the child works.
The Triple Stack
This is what makes the strategy so powerful. You're not choosing between benefits -- you're stacking them:
Layer 1: Business deduction. You deduct your child's wages, lowering your taxable income. At a 24% bracket on $15,000, that's $3,600 in savings.
Layer 2: Payroll tax exemption. If you're a sole prop or qualifying LLC with a child under 18, you skip FICA entirely. That's another $2,295 saved.
Layer 3: Child Tax Credit. You still claim the full $2,000 credit for each qualifying child.
Layer 4: Zero tax for your child. If they earn under the standard deduction, they owe nothing.
Layer 5: Roth IRA. Their earned income qualifies them to contribute to a Roth IRA, building tax-free wealth.
All five layers work simultaneously. You don't sacrifice any of them by implementing the others. Use our Tax Savings Calculator to see the full impact for your family.
The Only Thing That Could Affect Your CTC
The Child Tax Credit starts phasing out at $200,000 of modified adjusted gross income for single filers and $400,000 for married filing jointly. Ironically, paying your kids through your business actually LOWERS your AGI (because of the deduction), which could help you stay below those thresholds if you're close to the edge.
So hiring your kids doesn't just preserve the Child Tax Credit -- in some cases, it actually helps you qualify for it.
FAQ
Does this apply to the Additional Child Tax Credit too?
Yes. The Additional Child Tax Credit (the refundable portion) follows the same dependency rules. Your child's earned income doesn't affect it.
What about the Child and Dependent Care Credit?
That's a separate credit for childcare expenses. Hiring your child to work in your business is not the same as paying for childcare -- they're different credits with different rules.
My income is close to the phaseout. Does paying my child help?
Potentially, yes. The wages you pay are a deductible business expense, which reduces your adjusted gross income. A lower AGI could keep you under the phaseout threshold.
Ready to Stack the Savings?
Kids Payroll makes it easy to set up W-2 payroll for your kids, track their tasks, and keep the documentation the IRS requires.
Disclaimer: This article is for educational purposes only and does not constitute tax or legal advice. Consult a qualified CPA or tax professional for guidance specific to your situation.