A lot of us small business owners hire our children to work for us instead of paying them an allowance. According to the IRS they are looking at these closer. The IRS is stating this should be support.

Make sure the work your child does is work that your business actually needs. Have a time sheet for your children. This will help legitimize that your child actually works for you.

Withhold taxes as you would any employee and fill out an I-9, W-4 and state withholding forms. Since your child will hopefully not make enough to file their taxes and since they are in school they can file exempt on for W-4 and depending on the state they maybe able to file exempt there as well.

Filing exempt means that you will not take taxes out of their pay. If you have a college fund or a retirement account set up for your children then they can have some of their income sent to these accounts.

If your company has a matching retirement program your children may participate in that as well.