Your kids are already working on your farm or ranch. They're feeding cattle, fixing fences, and helping during calving season. So, should you be paying them for it?
The answer is yes, and if you set it up right, you can receive tax breaks for hiring your children while teaching them about money and getting their retirement savings started early.
Paying Family Members on the Farm or Ranch
I grew up working on our ranch. Nobody thought much about formalizing it back then. You worked because that's what you did, but the tax code actually rewards families who handle this strategically, and most farmers and ranchers don't realize how much money they're leaving on the table.
Here's what happens when you pay your kids real wages for real work: you shift income from your tax bracket to theirs. They likely pay little to nothing in federal taxes, and you get a business deduction. That's real money staying with your family instead of going to the IRS.
If your ranch is set up as a sole proprietorship or partnership (just you and your spouse), there's an additional benefit. Wages paid to kids under 18 are exempt from Social Security and Medicare taxes. That's 15.3% you're not paying.
Then there's the piece that compounds over time. If your child has earned income, they can contribute to a Roth IRA. Even young kids—seven, eight, nine years old.
Consider your situation: your 8-year-old does legitimate ranch work like feeding the bottle calf, helping with age-appropriate chores, whatever fits their capability. You pay them $2,000 for the year. That money can go into a Roth IRA and grow tax-free for the next 60 years.
Most people don't realize you can start this early, but the option is available. The difference between starting at 8 versus 18 is huge.
The Rules
The IRS watches for families who abuse this, so you need to do it right.
The work has to be real.
Your kids need to be doing actual work that benefits the operation; responsibilities like feeding cattle, moving irrigation pipe, fixing fence, helping during calving or haying season. Sitting around the house while you claim they're "on call" won’t count.
For younger kids, the work needs to match their age. They're not running equipment or working overnight shifts, but they can do age-appropriate chores that add value.
The wages have to be reasonable.
Pay them what you'd pay someone else for the same work. Paying your 14-year-old $50 an hour to feed cattle when you'd pay a hired hand $15 is going to raise questions you don't want to answer.
Younger kids doing basic chores might earn $8-12 an hour. Older teenagers handling more responsibility might earn $15-20 or more, depending on your area and the actual work involved. For a young kid putting in a couple of thousand dollars of work per year, that's usually reasonable and defensible.
You need documentation.
Keep timesheets. Track what work was done and when. For younger kids, you'll help them with this. Older kids should be logging their own hours.
It doesn't need to be complicated—a simple log works—but you need something showing this wasn't fabricated at tax time. This is also an opportunity to teach younger children valuable math and time management skills that are crucial foundations when running a ranching or farming operation.
You need to issue a W-2.
Your kids are employees, not independent contractors. That means W-2s, not 1099s. Even if Social Security and Medicare taxes don't apply because your child is under 18 and you're a sole proprietor, you must still issue a W-2 by January 31st.
Some families try to classify their kids as contractors to avoid this. The IRS knows the difference, and misclassifying creates problems that aren't worth the shortcut.
The Tax Breaks for Hiring Your Children
What actually changes when you start paying family members on the farm or ranch legitimately:
You reduce your taxable income - These wages are a deductible business expense. If you're in the 24% tax bracket and pay your kids $10,000 in wages, that's $2,400 less you're sending to the IRS.
Your kids likely pay zero federal tax - The standard deduction for 2026 is $15,000. If your child earns less than that, they probably owe nothing in federal income tax. You've successfully shifted income out of your higher bracket and into their lower bracket.
No FICA taxes if they're under 18 - For sole proprietorships or partnerships where both partners are the parents, wages paid to kids under 18 are exempt from Social Security and Medicare taxes. That exemption ends when they turn 18. If you're incorporated, FICA applies regardless of age.
No federal unemployment tax if they're under 21 - FUTA doesn't apply to wages paid to your child under 21 if you're a sole proprietor or spousal partnership.
Roth IRA contributions - This is the piece that can start to build long-term wealth. Your child can contribute up to $7,000 to a Roth IRA in 2026, or their total earned income, whichever is less.
Your 8-year-old earns $2,000? That can go into a Roth IRA.
Your 16-year-old earns $5,000? Same thing.
You can also gift them money to replace what they contribute to the Roth, so they're still earning spending money as a teenager, while still contributing to their Roth. The contribution still counts, and the money still grows tax-free. Starting at 8 instead of 28 makes an enormous difference over a lifetime.
When It Actually Makes Sense
This strategy works when your children are doing real work that helps the operation, you're in a higher tax bracket, you're willing to handle payroll and keep proper records, and you want to teach them about taxes and saving. It doesn't make as much sense if the operation isn't profitable enough to justify the wages, your kids aren't doing substantive work, or you're not prepared to deal with documentation requirements. Make the right decision for the financial plan for your farm or ranch.
How to Set It Up
Figure out what work counts: List the actual jobs your kids do, and be honest about what constitutes real work versus just being part of the family.
Set wages that make sense: Research what similar work pays in your area, and talk to your accountant about what's defensible if questioned.
Track hours: Create a simple timesheet system. Older kids log their own hours, and younger kids may need help, but the record still needs to be accurate.
Run payroll: You need actual payroll and W-2s at year-end. Accounting software or a payroll service can handle this. Talk to your accountant, as they typically can help you set it up correctly from the start.
Open a Roth IRA if it makes sense: If you're implementing this strategy, open a Roth IRA for your child once they start earning wages. Even small amounts starting young create substantial value over time.
Keep records: Save timesheets and anything demonstrating the work was real, and the pay was reasonable.
Why It's Worth the Effort
Paying your kids isn't just about tax breaks; it's about teaching them that work has value, that saving matters, and that planning for the future starts early.
When your 8-year-old sees money going into a Roth IRA and understands it's for their future, that's a financial lesson most kids never receive. When your teenager earns a real paycheck and sees taxes withheld, they learn how the system actually works.
40 years from now, when that Roth IRA has turned into substantial wealth, they'll understand why you took the time to do it right.
Talk to Your Accountant First
Every operation is different. Before you start paying your children to work on your ranching or farming operation, sit down with your CPA. Make sure your business structure supports this strategy.
If you want to talk through how this fits into your operation and your family's planning, give me a call. This is exactly the kind of farm and ranch financial planning we work through with families.
Ty McDonald is a rancher and financial advisor at Down Home Financial, specializing in working with agricultural families. To discuss tax planning and financial strategies for your farm or ranch, reach out at (406) 625-3368.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.