From the IRS:
Child employed by parents
Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Refer to the "Covered services of a child" section below. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payment for the services of a child are subject to income tax withholding, regardless of age.
Covered services of a child
The wages for the services of a child are subject to income tax withholding as well as social security, Medicare, and FUTA taxes if he or she works for:
- A corporation, even if it is controlled by the child's parent,
- A partnership, even if the child's parent is a partner, unless each partner is a parent of the child, or
- An estate, even if it is the estate of a deceased parent.
