Paying a family member who helps in your freelance business? The IRS, HMRC and CRA rules (US, UK, Canada)

If your partner does your bookkeeping or your teenager packs orders, you can pay them like any other employee, but the tax offices look closely at pay between relatives. Here's what the IRS, HMRC and the CRA say about when the pay counts as a business cost, what gets withheld for children, spouses and parents, payroll, and the records to keep.

General information, not tax, legal or payroll advice. Not written or reviewed by a lawyer or an accountant. The short answer, the side-by-side summary, the steps, the checklist, the wording to copy and all the other wording are ours; the official items come from the US, UK and Canadian government pages linked below. This page is about a self-employed person (a sole proprietor or sole trader) paying a relative to work in the business. It doesn't tell you what to pay anyone, and it doesn't cover household or domestic work, companies, partnerships in detail, child labour laws in detail, US states, Canadian provinces, Quebec, or other countries. Official pages were read on 2026-10-19.

The short answer

1. The work has to be real and needed by the business, and the pay should be what you'd pay someone outside the family for the same work.
2. Actually pay it, on paydays you can show, and keep records of the hours, the work and each payment.
3. US: pay to your child in your sole proprietorship is subject to income tax withholding, but to social security, Medicare and FUTA only from the ages the IRS gives; pay to a spouse who is your employee is subject to income tax withholding, social security and Medicare, but not FUTA.
4. UK: HMRC's guidance allows the cost if it's for the business and the amount isn't set by the relationship; PAYE, National Insurance, minimum wage and child employment rules depend on age and pay.
5. Canada: you can deduct a salary to your child or spouse if you pay it, the work is needed, and it's reasonable; report it on T4 slips, and EI may not apply between related people.
6. Pocket money isn't wages. Payments made out of family affection, or not made at all, aren't a business cost.

On this page

• 1. United States: what's withheld for family employees
• 2. United States: deducting the pay and the hiring forms
• 3. United Kingdom: when HMRC allows family wages
• 4. United Kingdom: payroll, minimum wage and children
• 5. Canada: deducting a salary to your child or spouse
• 6. Canada: CPP, EI and income tax for a related employee
• 7. Side by side
• 8. Step by step
• 9. Wording to copy
• 10. Checklist
• Free tools and kits
• Where the sources differ
• When to get advice
• Related
• Sources

1. United States: what's withheld for family employees

"One of the advantages of operating your own business is hiring family members. However, employment tax requirements for family employees may vary from those that apply to other employees." (IRS: Family employees, page date 11-Oct-2026).

• Your child, in your sole proprietorship: the IRS heading reads "Employed in the parent’s sole proprietorship or a partnership in which each partner is a parent of the child:"
  • Payments for the services of a child are subject to income tax withholding regardless of age.
  • Payments for the services of a child under the age 18 are not subject to social security and Medicare taxes.
  • Payments for the services of a child under age 21 are not subject to FUTA tax. If the child is 21 years or older, then payments for the services of a child are subject to FUTA taxes.
• Your child, in a company or another partnership: "If the business is a corporation, a partnership (unless each partner is a parent of the child), or an estate (even if it is the estate of the deceased parent of the child):"
  • Payments for services of a child are subject to income tax withholding, social security taxes, Medicare taxes and FUTA taxes regardless of age.
• Your spouse: "The wages for the services of an individual who works for their spouse in a trade or business are subject to income tax withholding and social security and Medicare taxes, but not to FUTA tax." (IRS: Publication 15 (Circular E), Employer Tax Guide, page date 30-Apr-2026). "One spouse working with the other spouse in a business could be doing so in several different ways each with different tax treatments."
• Employee or partner: "A spouse is considered an employee if there is an employer/employee type of relationship, for example, the first spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the first spouse." "However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business, then a partnership type of relationship exists" (IRS: Married couples in business, page date 10-Jun-2026). "If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for them."
• Your parent, in your sole proprietorship: "If the business is a child’s sole proprietorship:"
  • Payments for services of a parent are subject to income tax withholding, social security taxes and Medicare taxes.
  • Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided.
• When the exceptions don't apply: "The wages for the services of a child or spouse are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if they work for:"
  • A corporation, even if it is controlled by the child’s parent or the individual’s spouse;
  • A partnership, even if the child’s parent is a partner, unless each partner is a parent of the child;
  • A partnership, even if the individual’s spouse is a partner; or
  • An estate, even if it is the estate of a deceased parent.
  "In these situations, the child or spouse is considered to work for the corporation, partnership, or estate, not you."
• Single-owner entities: "Eligible single-owner disregarded entities and QSubs are treated as separate entities for employment tax purposes." See sole trader vs LLC or corporation for what those structures are.

Your own self-employment tax is a separate thing: see the US self-employment tax guide.

2. United States: deducting the pay and the hiring forms

• The deduction: "You can generally deduct on Schedule C (Form 1040) the pay you give your employees for the services they perform for your business. The pay may be in cash, property, or services." "To be deductible, your employees’ pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. In addition, the pay must meet both the following tests."
  • The pay must be reasonable.
  • The pay must be for services performed.
  (IRS: Publication 334 (2025), Tax Guide for Small Business, page date 30-Apr-2026).
• Not your own pay: "You can’t deduct your own salary or any personal withdrawals you make from your business. As a sole proprietor, you are not an employee of the business."
• Hiring paperwork: "If you hire employees, then there is information that you need to secure for your records and forms that you must complete including the following:"
  • Employee’s eligibility to work in the United States
  • Employee's Social Security number (SSN)
  • Employee's withholding
  "All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States." "Ask all new employees to give you a signed Form W-4 when they start work." (IRS: Hiring employees, page date 18-Feb-2026).

Wages go on the schedule you file with your return: see Schedule C for US freelancers. If the family member works as a contractor rather than an employee, see employee or contractor.

3. United Kingdom: when HMRC allows family wages

• Staff costs are allowable: "If you’re self-employed - a sole trader or individual in a business partnership - you can claim allowable business expenses for costs such as:"
  • employee and staff salaries
  • bonuses
  • pensions
  • benefits
  • agency fees
  • subcontractors
  • employer’s National Insurance
  • training courses related to your business
  "You cannot claim for carers or domestic help, for example nannies." "If you’re not sure whether a business cost is an allowable expense contact HM Revenue and Customs (HMRC)." (GOV.UK: Expenses if you're self-employed, staff expenses, page date 2024-11-08).
• Relatives aren't ruled out: HMRC's own guidance for its staff says "That an employee or director is a close relative or friend of the trade proprietor or controlling director does not mean that their wages or salary is automatically disallowed for tax." "If there is no non-trade purpose to the remuneration and the quantum is not determined by the relationship then the payment does not fail the wholly and exclusively test for deduction." "So where there is equal pay for equal value the amount paid is fully allowable, notwithstanding any connection between payer and recipient." (HMRC: BIM47105 - Specific deductions: staffing costs: payments to dependants and close relatives, page date 2023-05-09).
• When it fails: "Where there is a non-trade purpose to the remuneration or the quantum is determined by the relationship, then the remuneration is not paid wholly and exclusively for the purposes of the trade and it is not an allowable deduction." "Where the facts show that a definite part or proportion of the remuneration is not wholly and exclusively laid out or expended for the purposes of the trade, profession, or vocation, you should only disallow that part or proportion."
• Paying more than the going rate: "Where a relative/friend is paid significantly more than third parties doing the same work this is an indicator that there may be a non-trade purpose to the remuneration."
• Paying late: "In addition there are statutory timing rules that defer a deduction for amounts paid more than nine months after the end of the period of account in question."
• The reason for paying: "When considering a claim to deduct wages paid to relatives or connected persons you should look to establish that the reason for payment is wholly and exclusively for the purposes of the trade. If there is another reason (either in addition or instead) then the deduction will not be allowable." In the court case HMRC describes, wages for the trader's wife were entered in the accounts but credited to his own drawing account, and the deduction was refused; "You should note that the decision to disallow was not based on the mere fact of non-payment." (HMRC: BIM37735, relative's wages, page date 2016-04-01).
• Children and pocket money: "It is illegal to employ underage children." "If the payments were genuinely made as remuneration then they could be deducted notwithstanding any illegality. But, if the payments were made to the children out of natural parental love and affection then they were not deductible." In the farm case HMRC describes, payments to young children were mostly found to be pocket money rather than wages; HMRC's summary says "You should note in particular the Judge’s reference to:"
  • the amount paid to each child was the same
  • the amount of the payments was commensurate with pocket money
  • given the family circumstances, there was nothing surprising in finding healthy young children working on the farm in return for pocket money
  (HMRC: BIM37737, payments to minor children, page date 2016-04-01).

Staff costs go in your self-employment expenses: see UK Self Assessment for freelancers.

4. United Kingdom: payroll, minimum wage and children

• PAYE: "As an employer, you normally have to operate PAYE as part of your payroll. PAYE is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment." "You must register for PAYE if any of the following applies to an employee in the current tax year (since 6 April):"
  • they’re paid £96 or more a week
  • they get expenses and company benefits
  • they’re getting a pension
  • they’ve had another job
  • they’ve received Jobseeker’s Allowance, Employment and Support Allowance or Incapacity Benefit
  "If you do not need to register, you’ll still need to keep payroll records." (GOV.UK: PAYE and payroll for employers, page date 2015-02-09).
• Registering: "You must register before the first payday to get your employer PAYE reference number." "You cannot register more than 2 months before you start paying people." (GOV.UK: Register as an employer, page date 2024-11-27).
• Minimum wage: "You must pay people who do work for you at least the minimum wage if they are a ‘worker’ for minimum wage purposes and a specific exemption does not apply." "A family member living at home as part of the family and helping out with family chores does not qualify for the minimum wage." The exemption for a family member helping in the family business applies only when, in GOV.UK's words, "All of the following requirements must be met:"
  • the worker is a member of the employer’s family
  • the worker resides in the family home of the employer
  • the worker shares in the tasks and activities of the family
  "A limited company is a legal entity in its own right and cannot be considered to have a family, to be a member of a family or to own a family home so the family member exemption is not applicable in this instance." (GOV.UK: Calculating the minimum wage, eligibility, page date 2025-05-12). Current rates are on GOV.UK: National Minimum Wage and National Living Wage rates (page date 2024-10-30).
• Children's ages: "Children can work part-time from the age of 14." "In some local council areas, children can work part-time from the age of 13. Contact your local council’s education department or education welfare service for more information." "Once someone reaches 18, adult employment rights and rules then apply." (GOV.UK: Child employment, page date 2015-04-16).
• Paying children and young people: "School-aged children are not entitled to the National Minimum Wage." "Children under 16 do not pay National Insurance, so you only need to include them on your payroll if their total income is over their Personal Allowance." "Young workers aged 16 to 17 are entitled to at least £8 per hour." "If you pay any employee over £96 a week you must be registered as an employer and operate PAYE." (GOV.UK: Child employment, paying children and young people, page date 2015-04-16).
• Employer National Insurance: the thresholds are on GOV.UK: Rates and thresholds for employers 2026 to 2027 (page date 2026-09-01).

5. Canada: deducting a salary to your child or spouse

• The conditions: "You can deduct the salary you pay to your child, as long as you meet all these conditions:"
  • you pay the salary
  • the work your child does is necessary for earning business, professional, or fishing income
  • the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else
  (CRA: Line 9060 – Salaries, wages, and benefits (including employer's contributions), page date 2026-08-31).
• Records: "Keep documents to support the salary you pay your child. If you pay your child by cheque, keep the cancelled cheque. If you pay cash, have the child sign a receipt."
• Your spouse or partner: "You can also deduct the salary you pay to your spouse or common-law partner. When you pay your spouse or common-law partner a salary, use the same rules that apply to paying your child."
• Slips and what you can't deduct: "Report the salaries you pay to your children and spouse or common-law partner on T4 slips, the same as you would for other employees." "However, you cannot claim as an expense the value of board and lodging you provide to your dependent children and your spouse or common-law partner."
• Not your own pay: the same page tells you not to include "salaries or drawings of the owners of the business since salaries or drawings paid or payable to you or your partners are not deductible".
• Your share as employer: "As the employer, you must deduct your part of the following amounts payable on employees' remuneration:"
  • CPP or QPP contributions
  • employment insurance (EI) premiums
  The page also lists Quebec's parental insurance premiums and workers' compensation amounts.

Salaries go on your statement of business or professional activities: see our guide for Canadian freelancers.

6. Canada: CPP, EI and income tax for a related employee

• The starting point: "Depending on the facts of the working relationship, your employee’s employment may not be insurable and you may not have to deduct EI premiums." (CRA: Employee who is a family member or a related person, page date 2026-07-22).
• Who is related: "The following individuals are related by blood:"
  • A parent and a child (or another descendant, such as a grandchild or a great-grandchild)
  • A brother and a sister
  "Blood relatives do not include more distant relatives such as aunts, uncles, nieces, nephews, or cousins." The CRA page also covers marriage, common-law partnership and adoption.
• CPP: "If you (as the employer) and your employee are related, you must deduct CPP contributions as you would for your other employees, unless your employee is a spouse or common-law partner and you cannot deduct the remuneration paid as an expense under the Income Tax Act." For a young employee, "Start deducting CPP contributions in the first pay dated in the month after the employee turns 18." (CRA: Starting and stopping CPP deductions, page date 2025-10-21).
• EI: "Your employee’s employment may be insurable if, after reviewing all the circumstances of the employment, it is reasonable to conclude that you would have entered into a similar contract with a person with whom you deal at arm’s length." "Generally, the CRA reviews a combination of the following factors to determine whether the parties are dealing with each other at arm’s length (not just a single factor):"
  • Remuneration paid
  • Terms and conditions of employment, such as the hours of work
  • Duration of work performed
  • Nature and importance of the work performed
• Income tax: "Your obligation to deduct income tax applies regardless of whether you are related or not."
• Not sure: "If you or a person working for you is not sure of the worker's employment status, either one of you can request a CPP/EI ruling to determine the status and whether the employment is pensionable, insurable, or both."

7. Side by side

Our summary of sections one to six, not official wording.

8. Step by step

Our order of steps, based on sections one to six — not an official checklist.

1. Write down the work the family member will do for the business, the hours, and what you would pay someone else for the same work.
2. Check the official rules for their age and your relationship: the IRS family employee rules, GOV.UK child employment and minimum wage pages, or the CRA related-person page.
3. Set up payroll before the first payday where the rules require it: US withholding forms, HMRC PAYE registration, or CRA payroll deductions.
4. Agree the pay and pay it from the business account to the family member’s own account, on a regular payday.
5. Withhold and pay over the taxes and contributions that apply, and give them the year-end slip the agency asks for.
6. Keep a pay record for every payment: dates, hours, work done, gross pay, deductions and how it was paid.
7. Record the pay as a wages expense in your books and on your return, and don’t count unpaid or pocket-money amounts as wages.
8. Review the rate when the work or the hours change, and ask an accountant if the pay is large compared with the work.

9. Wording to copy

Replace everything in [brackets]. This is ours, not from any agency, and it's not legal, tax or payroll advice. It doesn't replace an employment contract or the forms your tax office asks for.

A work arrangement note for a family member

Work arrangement: [family member's name] and [your business name]

Role: [for example, bookkeeping, admin, social media, packing orders]
Duties: [what they do, in a few lines]
Usual hours: [hours per week or month], at [where they work]
Pay: [rate] per [hour / week / month], which is what I would pay someone outside the family for this work: [how you checked, e.g. job adverts or quotes]
Paid by: [bank transfer to their own account / payroll], on [payday]
Start date: [date]
Payroll and tax set-up: [what you registered or filed, and when]
Review date: [date]

Signed: [your name], [date]
Signed: [family member's name], [date]

A pay record for your files

Pay record (my own records, not an official payslip)
Employee: [family member's name]
Pay period: [start date] to [end date]
Hours worked: [hours]
Work done: [short description]
Gross pay: [amount]
Taxes and contributions withheld: [amounts, from your payroll software or the agency's tables]
Net pay: [amount]
Paid on: [date], by [bank transfer reference / cheque number]
Year-end slip: [form name and year, when issued]

10. Checklist

Our summary of the official pages above, not an official checklist.

• A short written description of the job, the hours and the rate
• What you would pay someone outside the family for the same work
• Their age and the official rules that go with it
• Payroll set up where the rules require it, before the first payday
• Pay sent to their own account, on paydays you can show
• A pay record for every payment, with hours and work done
• Year-end slips issued and taxes or contributions paid over
• The wages recorded as a business expense, and nothing else counted as wages

Free tools and kits

• Our free expense tracking guide shows a simple way to keep business cost records, wages included.
• Our paid Freelance Billing Kit by Small Rows (US$12, one-time) can log each wage payment as a business cost: the Expenses tab has a date, a category, a description, the amount paid and a "Deductible? (your call)" column, and the US and UK category lists on Settings include a wages line and a wages, salaries and other staff costs box. It isn't payroll software: it doesn't work out or withhold tax or contributions, register you as an employer, make payslips or year-end slips, or decide whether the pay is reasonable.
• All three kits together: the All-Kits Bundle by Small Rows (US$24, one-time).

Where the sources differ

• What "reasonable" means in the US: the IRS small business guide says the pay must be reasonable and for services performed, but the part we read doesn't define reasonable. Our reading is that comparing with what you'd pay someone outside the family for the same work, as HMRC and the CRA put it, is a sensible check, and that you should keep evidence of how you set the rate.
• Children's household work on the IRS page: the IRS family employees page says payments for domestic work in the parent's home "Are not subject to income tax withholding unless the payments are for domestic work in the parent's home." which reads oddly; the employer guide says "Payments for the services of a child of any age who works for their parent are generally subject to income tax withholding unless the payments are for domestic work in the parent’s home, or unless the payments are for work other than in a trade or business and are less than $50 in the quarter or the child isn’t regularly employed to do such work." Our reading is to follow the employer guide; household work isn't covered on this page anyway.
• Single-member LLCs in the US: the employer guide treats eligible single-owner entities as separate for employment tax, and its family exceptions are worded for sole proprietorships and parents' partnerships. Our reading is that if your business is a single-member LLC, you should ask a tax professional whether the family exceptions apply; the pages we read don't say.
• HMRC's manual is guidance for its staff: the business income manual pages are HMRC's internal guidance, not law, and two of them date from years ago and describe old court cases. Our reading is that they show how HMRC looks at family wages, so they're worth following, but they don't settle a particular case.
• Minimum wage isn't the tax test: GOV.UK says a family member living in your home and helping in the family business falls outside the minimum wage rules. Our reading is that this only answers the minimum wage question; whether the pay is an allowable cost still depends on HMRC's wholly and exclusively test.
• The UK weekly PAYE line: the PAYE page says you must register if an employee is paid that amount "or more" a week, while the child employment page says "over" it. Our reading is to treat the PAYE page as the rule and check with HMRC if pay sits right at that amount. Both pages carry page dates from years ago; on the day we checked, the weekly amount they quote was the same as the secondary threshold on GOV.UK's current rates page for employers, and the under-eighteen hourly rate matched GOV.UK's current minimum wage rates.
• The CRA spouse exception for CPP: the CRA says CPP is deducted for a related employee unless a spouse or common-law partner's pay can't be deducted as an expense. Our reading is that if the salary doesn't meet the deduction conditions, it's worth asking the CRA or an accountant how to treat it, rather than guessing.
• What we did not check: US federal and state child labour laws, state unemployment and withholding rules, household employee rules, the IRS deposit and filing schedules; UK employment contracts, workplace pensions, statutory pay and council byelaws for child workers; provincial employment standards, Quebec rules and the CPP and EI rates; how any of this works through a company or partnership; other countries' rules.

When to get advice

• you want to pay a child under the ages GOV.UK or your state or province sets for work;
• the pay is large compared with the work, or you're not sure what a fair rate is;
• your business is a company, an LLC or a partnership rather than you as a sole proprietor;
• the family member already has another job, a pension or benefits;
• you've been paying a relative informally and want to put it on a proper footing;
• the tax office asks about family wages in an audit or compliance check.

Talk to an accountant, a tax adviser or a payroll professional in your country. This page is general information only. Our tax audit guide covers what the agencies ask for in a check.

Related

• Schedule C for US freelancers
• UK Self Assessment for freelancers
• Canadian self-employment statement for freelancers
• Employee or independent contractor
• Sole trader vs limited company, LLC or corporation
• US self-employment tax
• Freelance expense tracking
• Tax audits and compliance checks

Sources

• United States: IRS: Family employees (page date 11-Oct-2026) · IRS: Publication 15 (Circular E), Employer Tax Guide (page date 30-Apr-2026) · IRS: Publication 334 (2025), Tax Guide for Small Business (page date 30-Apr-2026) · IRS: Married couples in business (page date 10-Jun-2026) · IRS: Hiring employees (page date 18-Feb-2026)
• United Kingdom: GOV.UK: Expenses if you're self-employed, staff expenses (page date 2024-11-08) · HMRC: BIM47105 - Specific deductions: staffing costs: payments to dependants and close relatives (page date 2023-05-09) · HMRC: BIM37735, relative's wages (page date 2016-04-01) · HMRC: BIM37737, payments to minor children (page date 2016-04-01) · GOV.UK: Calculating the minimum wage, eligibility (page date 2025-05-12) · GOV.UK: National Minimum Wage and National Living Wage rates (page date 2024-10-30) · GOV.UK: PAYE and payroll for employers (page date 2015-02-09) · GOV.UK: Register as an employer (page date 2024-11-27) · GOV.UK: Child employment (page date 2015-04-16) · GOV.UK: Child employment, paying children and young people (page date 2015-04-16) · GOV.UK: Rates and thresholds for employers 2026 to 2027 (page date 2026-09-01)
• Canada: CRA: Line 9060 – Salaries, wages, and benefits (including employer's contributions) (page date 2026-08-31) · CRA: Employee who is a family member or a related person (page date 2026-07-22) · CRA: Starting and stopping CPP deductions (page date 2025-10-21)

Checked 2026-10-19. Found a mistake? Tell us via Support.