Hiring a family member can work for a practice, but only when the work is real, the pay is fair for that work and the records show both. The tax side depends on your entity and the person's age, so ask your CPA before the first paycheck.
The work has to be real
A family member on payroll should do work the practice needs, the kind you'd otherwise pay someone else to do. Front desk, scheduling, billing follow-up, cleaning and filing are common examples. Write a short job description, the same as you would for anyone else.
The pay has to be fair
Pay what the job is worth, based on what you'd pay someone outside the family for the same work and hours. Paying a teenager a large salary for a few hours of filing won't hold up.
In a made-up example, your child works 6 hours a week filing and cleaning, and the going rate in your area for that work is $15 an hour. That's $90 a week, about $390 a month. That's a number you could defend, because it matches the work.
Run it through payroll
Family members are employees like anyone else. Run their pay through payroll, with the right forms on file, rather than handing them cash or paying them from your personal account. How payroll taxes apply can depend on your entity type and the person's age, and that's where your CPA comes in.
Keep records
- A job description.
- Time records, like a simple timesheet.
- Pay records from your payroll system.
- Proof the pay went to the family member's own account.
If the IRS ever asks, these records show the work and pay were real.
What to ask your CPA
- How do payroll taxes apply to a spouse or child in my entity?
- What age rules or labor rules apply?
- What records do you want me to keep?
- How should this fit with my own salary and retirement plan?
For work rules like minimum age and hours, check your state's labor rules or ask an employment attorney.
Treat them like any other employee
The same rules you use for staff should apply. Set a schedule, review their work and adjust pay the way you would for anyone else. If a family member stops working, take them off payroll. Mixing family pay with gifts or allowances blurs the line the records are supposed to show. If you'd be uncomfortable explaining the arrangement to an outside reviewer, change it before you start.
What I'd do this week
- Write down the tasks the family member would do and the hours.
- Look up the going rate for that work in your area.
- Send both to your CPA with the questions above.
Common questions
Can I pay my child from my personal account?
I wouldn't. Run it through practice payroll so the pay, the work and the taxes are all on record.
Does my spouse need to be on payroll if they help out?
If they do regular work for the practice, ask your CPA how it should be set up. Unpaid help and paid work are treated differently.
Is this a tax strategy?
It can have tax effects, but it has to be a real job first. Your CPA can tell you what applies to your situation.
Want payroll recorded the right way for everyone?
We reconcile every account every month and send your P&L and Balance Sheet by the 15th, so decisions like this start from real numbers. If that's what you need, apply to work with us.