Paying Family on the Farm: What You Can (and Can’t) Do Legally

Running a family farm is a lot of hard work. Many farm owners rely on help from people who live right there on the farm — often their children, siblings, or parents. This can make farm work feel like a team effort and a family tradition. But when it comes to paying family members, there are some important rules you need to follow. Just because someone is in the family doesn’t mean you can skip things like taxes or paperwork.

Let’s walk through what’s legal, what’s not, and why it’s important to talk with a tax preparer, CPA, or other tax professional before you pay anyone on your farm operation.

Disclaimer: This article is for general information only. Every farm business is different. Always talk with your tax preparer, CPA, or attorney for legal advice and help with your specific situation

Why Pay Family Members?

Paying family members can be a smart part of your farm taxes and tax planning. If done right, it can:

• Help lower your tax return by claiming tax deductions.
• Provide tax benefits to your family, especially for older kids and teens.
• Prepare the next generation for running the family farm.
• Reward the real hard work your loved ones do every day.

But there are limits. The IRS doesn’t let you make up jobs or wages just to cut taxes. There are also state laws and child labor rules you need to follow.

Who Counts as a Family Member?

A family member can be:

• Your spouse
• Your children
• Your parents
• Your siblings
• Sometimes your in-laws, grandchildren, or other relatives

Different rules apply depending on the age and relationship of the person. The IRS, your state’s labor department, and your accountant may all treat these people differently when it comes to income tax, social security, and other farm issues.

Can I Pay My Children?

Yes, but there are age and task rules. Here’s how it breaks down:

Children Under 18

• If you’re a sole proprietorship or small business that’s a family-owned partnership, you can hire your own children.
• You don’t need to pay social security or Medicare taxes for them.
• You can pay them a fair hourly wage — just like you would a non-family worker.

Children Under 16

• Can only do certain types of farm work under child labor laws.
• They can’t use heavy equipment, work long hours during school weeks, or do dangerous tasks.

Children of Any Age

• Must be doing real work.
• Pay must match market value — what you’d pay someone else for the same job.

You can't pay your 10-year-old $30 an hour to “supervise the cows” if they’re really just hanging out in the barn.

Can I Pay My Spouse?

Yes. Paying your spouse can create tax benefits, like:

• Contributions to their own Roth IRA or retirement plan.
• Better tax deduction opportunities for the farm business.
• Boosting their eligibility for social security later on.

Just make sure the job is real, the pay is fair, and the hours are tracked.

Can I Pay My Parents or Grandparents?

Yes, but payroll tax rules apply differently:

• You must withhold income tax and pay social security and Medicare taxes.
• If they live on the family farm, the work must be part of the farm operation, not personal help.

If they’re mowing hay fields, great. If they’re babysitting your toddler while you mow — not so much.

What Jobs Can Family Members Do?

Here are some examples of real farm work:

• Feeding animals
• Harvesting crops
• Bookkeeping or managing records
• Running a real estate website for farm rentals
• Fixing fencing or machinery
• Packing eggs or produce

Jobs should have clear duties and work hours, even if the person is your kid or your spouse.

What About Paperwork?

You need to treat family members like employees for tax purposes, which means:

• Track their work hours and tasks.
• Pay at a fair hourly wage based on market value.
• Provide pay stubs or receipts.
• Report their income on your tax return if it’s over the minimum.

Even if you’re hiring your 14-year-old daughter, keep good records. This helps you prove to the IRS that the work was real and the payment was legal.

Don’t Forget State and Federal Laws

State laws might require:

• Workers’ compensation insurance, even for family.
• Obeying child labor limits.
• Following local wage and hour laws.

The U.S. Department of Labor has rules, and your state probably has its own. Always double-check before hiring minors.

How Does This Affect My Taxes?

Paying family members legally can help your farm taxes by:

• Reducing your net income (which lowers your income tax).
• Creating tax deductions for wages and employment taxes.
• Helping your kids start saving in a Roth IRA.
• Possibly shifting income into lower tax brackets — a strategy your CPA might call “income splitting.”

But if you don’t do it right, the IRS may reject your deductions, fine your farm business, or worse. That’s why working with a tax professional is key.

What About Farm Ownership?

Paying family can be a great step toward bringing the next generation into the family farm, but it’s not the same as sharing ownership. That’s where estate planning, real estate titles, and even life insurance come in.

Here are some tools to consider:

• A Roth IRA or 401(k) for kids or your spouse
• A trust or LLC to pass down land
• Capital gains rules for gifting or selling land
• Estate tax limits and how to stay under them
• Using probate planning to avoid court battles after death

If you're thinking long-term, sit down with a tax attorney or CPA and make a plan.

What About Gifts Instead of Wages?

The IRS allows gifts up to a certain amount (currently around $18,000 per person per year), but gifts don’t count as farm work pay.

If you give your son $10,000 at Christmas, that’s fine — but you can’t write it off your farm taxes. That’s only for employees or contractors.

Should I Report This Income?

Yes, in most cases. If a family member earns over $400 in self-employment income, they must report it. If they’re under 18 and working for your sole proprietorship, some taxes may not apply — but income tax usually still does.

Always report wages correctly on your tax return and your employee’s return. That includes:

• W-2 forms for employees
• 1099 forms for contractors
• Schedule F for farm business owners

Real-Life Example

Let’s say Emma and Jake run a family farm. Their 15-year-old son Caleb feeds chickens, collects eggs, and keeps records. They pay him $12/hour, which is a fair hourly wage for their area. He earns $5,000 during the summer.

• Caleb doesn’t owe social security tax.
• Emma and Jake claim the wages as a tax deduction.
• Caleb uses his earnings to open a Roth IRA and starts saving for college.
• They report everything properly and avoid trouble with the IRS.

That’s a great example of turning farm work into smart tax planning — and preparing the next generation.

Final Tips

• Don’t just pay cash under the table — that’s illegal.
• Keep good records, even if it’s just your 12-year-old daughter helping.
• Match pay to market value, not favors.
• Ask a tax preparer or CPA to review your plan.
• Think about the long-term future of your farm operation — including probate, real estate, and estate tax planning.

Paying family can help your farm grow, keep your kids involved, and lower your taxes — but only if you follow the law.

Quick Checklist

✅ Pay for real farm work, not chores

✅ Use fair hourly wage based on market value

✅ Follow state laws and IRS rules

✅ Report income for tax purposes

✅ Claim legal tax deductions

✅ Ask a tax professional for help

✅ Plan ahead for estate planning and the next generation

If you need help organizing your records, tracking wages, or preparing your farm taxes, FarmRaise is here to help. We offer tools and guidance to support every small business farmer — even if the whole crew is in the family.

Want help tracking who’s doing what on the farm? Reach out to us — we’ve got your back.

Ready to get started with FarmRaise Tracks to get your finances on track? Use code IT3H12B for 20% off, or click here to get started.