## Quick Answer

The IRS requires **"contemporaneous" documentation** for child employment. These are records created when work is performed, not reconstructed later. Without proper documentation, your wage deductions and your child's Roth IRA contributions can be challenged. Here's exactly what you need.

## Why Documentation Matters

Hiring your kids is legal. But "I paid my kid for chores" without documentation is a red flag in an audit.

Here's what can go wrong:

- **Wage deduction disallowed:** The IRS reclassifies wages as a non-deductible gift
- **Roth IRA contributions challenged:** Without proof of earned income, contributions may be deemed excess
- **Penalties and interest:** Back taxes plus interest plus potential penalties
- **FICA exemption denied:** You may owe payroll taxes you thought you avoided

The solution isn't complicated. It's just having the right records from the start.

## The Contemporaneous Requirement

**"Contemporaneous"** is the key word. It means the documentation was created at the time the event occurred, not reconstructed later.

### What IS contemporaneous:

- A work log entry made the same day the work was performed
- A timesheet signed weekly
- Server-timestamped records that can't be backdated

### What is NOT contemporaneous:

- A spreadsheet filled in at year-end
- Work logs created during an audit
- "We remember what they did" testimony

**Why this matters:** The IRS knows that editable spreadsheets can be created or modified at any time. They're not proof that work happened—they're just a document someone created. Server-timestamped records are far more defensible.

## Complete Documentation Checklist

### Before Employment Starts

1. **Written Employment Agreement**  
   Includes job title, duties, pay rate, and terms of employment. Signed by parent and child (or parent on child's behalf if very young).

2. **Job Description**  
   Detailed description of tasks the child will perform. Should be specific enough that an outsider can understand the work.

3. **Rate Justification**  
   Documentation of how you determined the pay rate is reasonable. Market research, comparable rates, etc.

### Ongoing Records

4. **Work Logs / Timesheets**  
   For each work session: date, hours worked, tasks performed. Created at the time of work, not later.

5. **Payment Records**  
   Documentation of every payment: date, amount, method. Checks and bank transfers create automatic paper trails. Cash does not.

6. **Work Product (when applicable)**  
   Photos of completed work, saved files they created, before/after images. Not required but helpful.

### Year-End Documents

7. **W-2**  
   Required for all employees, including your children. Reports total wages paid during the year.

8. **Annual Work Summary**  
   Summary of total hours, tasks performed, and wages earned during the year.

9. **Payment Reconciliation**  
   Summary showing: total earned vs. total paid vs. amount owed. Helps for tax filing and Roth IRA contribution limits.

10. **Roth IRA Contribution Memo**  
    Documentation of earned income supporting the Roth IRA contribution. Shows the connection between work and contribution.

## DIY vs. Using a Tool

You have options for maintaining these records. Here's an honest comparison:

### DIY Spreadsheet

**Pros:**

- Free
- You control everything
- No learning curve if you know spreadsheets

**Cons:**

- No server timestamps (editable at any time)
- No audit trail (who changed what, when)
- Easy to forget to update
- You have to create all documents manually
- Harder to defend in an audit

### employkids

**Pros:**

- Server-timestamped records (tamper-evident)
- Full audit trail with edit history
- Auto-generated employment agreements
- One-click year-end tax packet
- Built specifically for this use case

**Cons:**

- $299/year (Home) or $499/year (Pro)
- Another tool to learn

### Full Payroll (Gusto, QuickBooks)

**Pros:**

- Handles W-2 filing automatically
- Direct deposit
- Full payroll compliance

**Cons:**

- $40-100+/month per employee
- Overkill for 1-4 kids
- Doesn't focus on documentation (just payroll processing)
- No Roth IRA tracking

**Our take:** If you're just hiring your kids (not running payroll for other employees), a purpose-built tool like [employkids](/content/site-root.html) is the sweet spot—more defensible than spreadsheets, more affordable than full payroll, and built for this specific use case.

## What Auditors Actually Look For

If you're ever audited, here's what the IRS will examine:

### 1. Was the work real?

They'll want to see evidence that your child actually performed work. Detailed work logs with specific tasks are more convincing than vague entries like "helped around the house."

### 2. Was the pay reasonable?

$50/hour for a 10-year-old filing papers won't hold up. They'll compare your rates to market rates for similar work. The more unusual your rate, the more justification you need.

### 3. Were records contemporaneous?

This is the big one. They'll ask when records were created. Server timestamps prove creation date. Editable spreadsheets don't.

### 4. Is there an edit trail?

If records were changed, was the original preserved? Tools with audit logs show complete history. Spreadsheets show only the current version.

### 5. Do payments match work?

Did you pay for work that was actually logged? Payments without corresponding work entries are suspicious.

## Frequently Asked Questions

### What does "contemporaneous" documentation mean?

Contemporaneous means the documentation was created at the time the work was performed, not reconstructed later. A spreadsheet filled in at year-end is not contemporaneous.

### Do I need to issue a W-2 to my child?

Yes. You must issue a W-2 to your child at the end of each year they work for you, reporting wages paid.

### Can I use a spreadsheet to track my child's work?

You can, but spreadsheets can be edited at any time and have no audit trail. Server-timestamped records are more defensible in an audit.

### What if I forget to log work when it happens?

Log it as soon as you remember, but note that it was logged late. With server-timestamped tools, the late entry will be visible in the audit trail. This is honest and defensible—reconstructing records without noting the delay is not defensible.

### Do I need to keep records for previous years?

Yes. The IRS generally has 3 years to audit, or 6 years if there's substantial underreporting. Keep all records for at least 7 years to be safe.

## Sources

- [IRS Publication 334](https://www.irs.gov/publications/p334): Tax Guide for Small Business
- [IRS Recordkeeping Requirements](https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping): What Records to Keep
- [IRS Family Help](https://www.irs.gov/businesses/small-businesses-self-employed/family-help): Employing Family Members