Documenting a Child’s Earned Income

Documenting a child’s earned income matters because a custodial Roth IRA contribution is only as strong as the records behind it. Here is the paper trail that makes a child’s cash income audit-proof — and the special rules when the employer is you.

What Records Prove a Child’s Earned Income?

For W-2 jobs, the W-2 is the proof — done. For the cash economy (babysitting, mowing, kid businesses), the IRS accepts self-employment income backed by contemporaneous records: a log kept as the money is earned, not reconstructed in April. Each entry: date, payer, service, amount. A notebook works; our Children/Self-Employed Paycheck Tracker is built for it. Add simple supports where natural — texts arranging the job, payment-app receipts. The contribution cap is the lesser of documented earnings or $7,500 (2026), remember the $400 SE-tax rule kicks in along the way, and file the log with your tax records for each year a contribution is made.

Hiring Your Own Child in the Family Business

If you run a real business, paying your child for real work is one of the cleanest arrangements in the tax code: their wages are a deductible business expense to you, income taxed at their (usually zero) rate — and if your business is a sole proprietorship or spouses-only partnership, wages paid to your under-18 child are exempt from Social Security and Medicare taxes entirely.[1]

Two practical constraints sit on top of the tax rules. A “reasonable wage” is the tax test, but it is not the only one: your state sets a minimum wage that acts as the floor, and where the state figure is higher than the federal one, the state figure governs. And if your child lives or works in a different state from where the business operates, you have a multi-state payroll question — which state’s withholding applies, and whether the business has created a filing obligation there. Neither is a reason to avoid hiring your child. Both are a reason to ask a payroll provider before the first paycheck rather than after. The full mechanics are in Hiring Your Child in the Family Business.

1. Real work, really performed: filing, cleaning, photography, social posts, modeling for ads — age-appropriate and documented (task list + hours log).
2. Reasonable wage: what you’d pay a stranger for the same work. $50/hour for shredding paper is how audits start.
3. Pay properly: on the books — payroll or documented checks into the child’s account, W-2 at year-end.
4. Then Roth it: those wages are bulletproof earned income for the custodial Roth IRA.

If the work is for your own business rather than the neighbors, the rules are different and better — entity type, payroll, and the W-2 that documents everything are in Hiring Your Child in the Family Business.