Hiring Your Child vs. Claiming the Child Tax Credit: Which Strategy Builds More Value?

When it comes to tax planning, families often overlook powerful strategies that can reduce liability and build wealth at the same time. Two common options are claiming the Child Tax Credit (CTC) or hiring your child to work in your business. Both can be beneficial, but which one makes the most sense for you? Let’s break it down.

1. Understanding the Child Tax Credit

The Child Tax Credit allows qualifying parents to reduce their tax bill. For 2025, the credit is worth up to $2,000 per eligible child, depending on income and filing status. It’s straightforward: you file your taxes, meet the criteria, and lower your liability.

Pros:

• Simple and automatic if you qualify

• Reduces tax liability directly

• No additional paperwork beyond tax return requirements

Cons:

• Income limits phase out benefits

• Offers no opportunity for your child to earn or save independently

2. The Strategy of Hiring Your Child

If you own a business, hiring your child for legitimate work can provide significant tax advantages. Common jobs might include social media help, filing, marketing tasks, or assisting with administrative duties.

Tax Benefits:

• Wages paid to your child are deductible business expenses.

• If your child is under 18 and you operate a sole proprietorship (or certain partnerships), you generally don’t pay Social Security and Medicare taxes on their wages.

• Children can earn up to the standard deduction limit ($14,600 for 2025) tax-free.

Pros:

• Shifts income from your higher tax bracket to your child’s lower (or zero) tax bracket

• Creates opportunities to fund a Roth IRA or savings account for your child

• Teaches financial responsibility and work ethic

Cons:

• Requires legitimate work performed and proper payroll documentation

• May involve more administrative effort compared to simply claiming the CTC

3. Which Strategy Builds More Value?

• Short-Term Savings: The Child Tax Credit is easier and immediate—no payroll setup, no added paperwork.

• Long-Term Wealth Building: Hiring your child not only creates tax savings for you but also allows your child to earn money, save, and even begin investing early. Over time, this strategy can far outweigh the one-time credit.

4. A Hybrid Approach

In some cases, families can benefit from both strategies. For example:

• Claim the Child Tax Credit if you qualify.

• Hire your child for legitimate business work and deduct their wages.
  The combined effect can lower your taxes today and build generational wealth tomorrow.

Conclusion

Choosing between hiring your child and claiming the Child Tax Credit isn’t an either/or decision—it’s about which option aligns with your financial goals. If you’re focused on simplicity, the CTC delivers. If you’re ready to build long-term wealth and involve your child in your business, hiring them can be a game-changing strategy.

At AIIZ Financial, we’ll help you evaluate your unique situation and design a tax strategy that maximizes savings and sets your family up for financial success.