You’ve found the perfect job for your child, they’re earning money, and you’re ready to open their Roth IRA. But then a wave of anxiety hits: how do you prove this income to the IRS? What if you get audited? The fear of messing up the paperwork is enough to make many parents abandon the idea altogether. Don’t let it stop you. Learning how to prove child earned income is simpler than you think, and creating an audit-proof paper trail is the key to investing with total peace of mind.
This guide will provide you with a step-by-step framework and simple templates to meticulously document your child’s earnings. Think of it as your compliance checklist for the IRS.
Why Documentation Is Non-Negotiable
The IRS requires that all contributions to an IRA be made from earned income. If you contribute more than your child earned, or if you contribute based on income that doesn’t qualify (like an allowance), the IRS can impose penalties. These can include a 6% penalty on the excess contribution for every year it remains in the account.
Proper documentation is your shield. In the unlikely event of an audit, a clear and consistent paper trail proves that every dollar contributed was legitimate.
The Three Pillars of an Audit-Proof Record
Your documentation system should be built on three core components: an income log, proof of payment, and proof of work.
Pillar 1: The Income Log
This is the heart of your record-keeping. An income log is a simple ledger where you track every single payment your child receives for their work. You can use a physical notebook or a simple spreadsheet (like Google Sheets or Excel).
Your income log should include the following columns:
- Date: The date the work was completed or the payment was received.
- Client Name & Contact Info: Who paid for the service? (e.g., “Mr. Smith,” “The Jones Family”).
- Description of Service: What specific work was done? (e.g., “Mowed lawn,” “Babysat for 3 hours,” “Sold 5 handmade bracelets”).
- Amount Paid: The exact amount your child received.
Download Our Free Template: To make it even easier, we’ve created a simple income log template you can download and use today: [Link to a downloadable Google Sheet/Excel template]
Sample Income Log Entry:
| Date | Client | Service Description | Amount |
|---|---|---|---|
| Nov 15, 2025 | Jane Doe | Dog walking (M-F) | $50.00 |
Pillar 2: Proof of Payment
An income log is great, but you also need evidence that money actually changed hands. This is your proof of payment.
- For Cash Payments: This is the trickiest to document. When your child is paid in cash, deposit that cash into their own bank account. The deposit slip will create a record. In the memo line of the deposit slip, write the source (e.g., “Lawn mowing income”).
- For Digital Payments: This is ideal. Payments through apps like Venmo, Zelle, or PayPal create a digital footprint. Instruct clients to include a clear memo like, “For babysitting on 11/10.” Take screenshots of these transactions and save them in a dedicated folder.
- For Checks: Checks are also excellent proof. Before depositing, take a photo of the check, making sure the memo line is filled out (e.g., “Yard work”).
Pillar 3: Proof of Work
This final piece connects the payment to a real-world activity. It proves that the work actually happened.
- Invoices: For more formal jobs, have your child create a simple invoice. It should include their name, the client’s name, a description of the services, the date, and the amount due. This adds a powerful layer of professionalism. You can find many free invoice templates online.
- Photos and Videos: Take pictures of your child in action—mowing the lawn, walking the dog, or selling their crafts. These visuals can be surprisingly effective evidence.
- Client Communication: Save emails or text messages where you or your child discuss the job and payment with the client.
Special Case: Documenting Income from a Family Business
If you hire your child in your own business, documentation is even more critical to prove it’s a legitimate employer-employee relationship and not a disguised allowance.
- Create a Formal Job Description: Write down their official title and responsibilities.
- Pay a Reasonable Wage: Research what you would pay a non-family member for the same work and pay your child that exact rate. Document this rate.
- Use a Time-Tracking System: Have your child clock in and out using a simple app or a timesheet. This creates an indisputable record of their hours.
- Pay via Payroll: The absolute best method is to put your child on your company’s payroll and issue them a formal paycheck and a W-2 at the end of the year. This eliminates any ambiguity.
Stay Organized and Be Consistent
The key to stress-free documentation is consistency. Don’t wait until the end of the year to try and piece everything together. Take five minutes each week to update the income log and save any new receipts or photos.
Create a dedicated folder on your computer or in a cloud service (like Google Drive) labeled “Child’s Name – 2025 Earned Income.” Inside, create subfolders for “Income Log,” “Payment Proof,” and “Work Proof.”
By following this framework, you’ll have an organized, audit-proof system that lets you focus on what really matters: teaching your child the incredible power of investing for their future.
Disclaimer: This guide is for informational purposes only and should not be considered legal or tax advice. We are not a tax or legal firm. We strongly recommend consulting with a qualified tax professional to ensure your documentation methods meet IRS requirements.