Discussion:Paying children
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Kvaccounting (talk|edits) said: | 11 April 2006 |
| A client called and said his step-son(age 12) will be doing work for him in his trucking business. He will be washing truck/sweeping trailer. Client wants to know if he has to run step-son through payroll/other tax implications. clint is sole prop with no fid #. | |
| 11 April 2006 | |
| Good tax plan. Dad gets deduction while child probably pays no tax. If business is unincorporated, client can pay wages to child, no FICA or FUTA taxes will be due. I think he will need a TIN and at year end he will need to issue W-2 and file Form 941, but no taxes will be due, as long as the child does not earn more than the std deduction amount for a single person. Child must do real work and payment can't be excessive. Now pay the kid enough to fill a Roth IRA contribution and start to teach him the magic of investing early. $4k compounded annually at 6% becomes $82k by age 65. Compounding at 8% it will become $218k by age 65. Tax free withdrawal too! | |
Mtmckeecpa (talk|edits) said: | 11 April 2006 |
| Kva,
Agree 100% with with the Roth idea by Jd, hands down, a great move... He needs a TIN for payroll. | |
| 11 April 2006 | |
| Ditto on the Roth. 3 or 4 years contributions and you start looking at 7 figures TAX FREE. And remember, ever since Joe K. got involved, the market has returned 10% over the time we're talking about here. | |
Richard@rinercpa.com (talk|edits) said: | 11 April 2006 |
| Make sure that your client can provide job description and time records in the event of audit. Otherwise, good idea. | |
| 12 April 2006 | |
| Yeah, but wages paid to spouse will be subject to FICA taxes. Wages paid to child under 18 avoid FICA. | |
Kvaccounting (talk|edits) said: | 12 April 2006 |
| I am not up to speed on payroll things. how does this avoid any fica taxes. Anyplace for me to go read up on this. | |
| 12 April 2006 | |
| Wages must be to your own child. Step child does not qualify. The Federal Circular E employment tax guide explains it. | |
Kvaccounting (talk|edits) said: | 12 April 2006 |
| It is his own child. Thanks for info | |
| 12 April 2006 | |
| Warren does point out an interesting point. Code Section 3121(b)(3)(A) exempts "services performed by a child under the age of 18 in the employ of his father or mother." So technically, a step-child might not qualify (although an adopted child certainly would). Interestingly, even a jointly owned Sch C or husband/wife partnership might not apply, since according to Reg 31.3121(b)(3)-1(c), "Services performed in the employ of a partnership are not within the exception unless the requisite family relationship exists between the employee and each of the partners comprising the partnership." | |
11 March 2012 | |
| Assuming the minor child is biological child of the mom/pop partnership. What are minimum required filings? W-2/W-3 and annual 944 ( 944 with approval from IRS)? Wages will be less than $500 for the year. I have seen elsewhere where IRS has not rejected returns with the income listed on line 21 detailed as child income of parents not subject to SS. We are talking 1 child working 1-2 hours per week at close to minimum wage. Wants to fund a Roth account legitimately.
Also what about SSA.gov? I see no need since the wages are not subject to FICA or FUTA. Thanks. | |
| 11 March 2012 | |
| If these are wages, you'd definitely have to file the payroll reports. | |
| 11 March 2012 | |
| So only W-2/W-3 and 944 then? No ssa.gov?
Thanks I want to do this correctly, though obviously it is a lot of effort for no tax liability. | |
| 11 March 2012 | |
| Sorry,
You can file the W-2/W-3 electronically with SSA. So I answered my own question. I appreciate the feedback. | |
| 12 March 2012 | |
| Well, I decided to call the IRS about what was required and I was told that 941/944 was not required nor was a w-2. Amazing. | |
| 12 March 2012 | |
| In the case of W2's, I suggest you read Reg ยง1.6041-2. You may be under the $600 cut-off for 2011, but maybe not for future years. | |
| 12 March 2012 | |
| Ckenefick
Thanks I will read this. I am under the $600 limit. I think I will go with line 21 and move on. I wish the IRS was as knowledgeable as you. | |
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