Family Payroll Strategies – How to Save on Taxes While Staying Compliant in Oklahoma
Many Oklahoma business owners know they can pay their spouse or kids through payroll. But most don’t know how to structure those payments to actually save on taxes — and avoid problems with the IRS or Oklahoma Tax Commission.
This blog dives into advanced family payroll strategies, with real CPA insights on:
- Shifting income
- Leveraging exemptions
- Avoiding audit red flags
- Structuring benefits
- And staying 100% compliant
Why Family Payroll Strategy Matters
The goal isn’t just to pay your family — it’s to:
- Create
tax-deductible compensation
- Keep income in the family
- Qualify for
retirement contributions
- Lower overall tax liability
- Avoid triggering payroll audits
Done right, family payroll can offer powerful benefits.
Done wrong, it can raise red flags that cost you dearly.
1. Shift Income to Lower Brackets
This is the core tax strategy behind family payroll.
Let’s say:
- Your Oklahoma business nets $150,000
- You’re in the 24% tax bracket
- Your child has no income
If you pay your child $14,000 in W-2 wages:
- You get a
$14,000 business deduction
- Your child pays
zero income tax (standard deduction = $14,600 in 2024)
- You shift income from 24% → 0%
- That saves you
~$3,360 in federal taxes
This is 100% legal
if the child does real work, earns a reasonable wage, and gets paid through proper payroll.
2. Leverage FICA and FUTA Exemptions
If you're a sole proprietor or single-member LLC:
- You do
not have to pay
FICA (Social Security/Medicare) for your child under age 18
- You do
not have to pay
FUTA (unemployment tax) for children under 21
This adds another 7.65% tax savings on top of the income tax deduction.
Example:
Pay your 15-year-old $10,000 → Save $765 in payroll taxes + $2,400+ in income taxes
Learn more in Blog 20:
Can I Pay My Spouse or Kids Through Payroll? »
3. Use Payroll to Fund a Roth IRA for Your Child
If your child earns W-2 wages:
- They can contribute to a
Roth IRA (up to $7,000/year in 2024)
- You can fund the IRA for them as a gift
- Contributions grow
tax-free forever
- This creates a
retirement nest egg starting in their teens
Your business gets the deduction.
Your child builds wealth.
The IRS has no problem with this — as long as it’s real, documented income.
4. Pay Your Spouse for Real Work and Share Retirement Benefits
Paying your spouse allows you to:
- Deduct their
wages
- Offer
401(k) or
SIMPLE IRA contributions
- Pay
health insurance premiums through a group plan
- Maximize household income
within lower tax brackets
Just be sure:
- They actually
do the work
- Their role is
clearly defined
- Their wages are
reasonable for their duties
We help Oklahoma clients set this up correctly — with supporting documentation for IRS audit defense.
5. Add Your Family to Group Health Plans
If you’re offering benefits to staff:
- Add your
spouse or child (if over 18) as a W-2 employee
- You can provide health, dental, vision, HSA, and retirement
- These are
deductible by the business
- No additional tax burden if handled through a compliant payroll and benefit plan
6. Avoid These Red Flags
Don’t ruin a good strategy with sloppy execution. Avoid:
Paying cash “under the table”
Document everything. Use payroll. File a W-2.
Overpaying for basic tasks
Don’t pay your 10-year-old $60/hour to post on Instagram. Keep wages reasonable.
No timesheets or job descriptions
Even for family, you need proof of hours worked and job duties.
Mixing business and personal accounts
All payroll should run through a registered business bank account and payroll system.
Forgetting to file W-2s or 941s
Filing obligations still apply — including quarterly tax returns and state reporting.
What Entity Type Makes This Work Best?
Entity Type | Spouse Payroll | Kid Payroll (FICA/FUTA Exempt) |
---|---|---|
Sole Proprietor | Yes | Yes (<18) |
Single-Member LLC | Yes | Yes (<18) |
Partnership | (if not a partner) | Yes (<18) if both parents are partners |
S Corporation | Yes | No FICA exemption — must pay full payroll taxes |
Sole proprietors and single-member LLCs get the maximum tax benefit when paying family.
8. Documentation Checklist
Before running family payroll, make sure you have:
- Job title + description
- Timesheets or work logs
- W-4 and I-9 on file
- Payroll system with correct exemptions (FICA/FUTA)
- Reasonable pay structure
- Quarterly 941s and Oklahoma filings
- Year-end W-2s issued and filed
We handle all of this for our payroll clients — including audit support if needed.
FAQs – Family Payroll Tax Strategies in Oklahoma
Can I pay my 7-year-old?
Yes — but only for age-appropriate work (e.g., modeling, acting). Document carefully and pay a market rate.
Can I fund a Roth IRA from their wages?
Yes — your child must have earned W-2 wages, but you can gift the contribution amount.
Can I pay my spouse and let them contribute to a 401(k)?
Absolutely — this is a smart way to reduce business and personal tax liability.
What if I already paid them last year but didn’t file anything?
You likely need to amend returns and file back W-2s. We can help clean it up.
How much can I pay without triggering taxes for my kid?
Up to the standard deduction amount ($14,600 in 2024) if they have no other income.
CPA Payroll Strategy That Keeps It All In the Family (Legally)
At Boulanger CPA, we help Oklahoma business owners:
- Run tax-smart family payroll
- Set up Roth IRAs and 401(k)s for spouses and children
- File everything correctly with the IRS and state
- Stay audit-proof while keeping more money in the family
Schedule a Family Payroll Tax Strategy Call
See Our Transparent Pricing
Marc Boulanger
Marc views his accounting business as an extension of his family. And while he holds a Bachelor of Arts in Business Administration and Accounting and a Masters of Science in Accounting, he values traveling around the country with his wife of 30 years and 5 kids, Marc learned that communication is the key to effective team work.