Wages to Kids and No Social Security

[joelgilb]

Have a client that has a sched c business. Paid 3 children for assistance in the business and did not issue W-2 or 1099's and took no social security out. I know that a parent can pay their child and avoid SS tax on the income to them, as well as take the deduction on their sched C.

BUT.. one child is 20 years old and in college (still a dependent) the other 2 are minors.

1. Can i take the deduction for the money paid to the 20 year old and can the 20 year old still avoid SS?

2. does it have to be W-2 wages or can I show it as Other income on the 1040? Or do I have to issue W-2's to the 3 kids?

Joel

EDITED

[joelgilb]

anyone have any suggestions?

Joel

[Ray in Ohio]

Off the top of my head I say "No". Dont know of a way to avoid SS taxes for a 20 yr old.

(no references though)

[michaelmars]

how much are you talking about, bet its $400 each, just less than the requirement for 1099 income to be reported by the kids

[joelgilb]

how much are you talking about, bet its $400 each, just less than the requirement for 1099 income to be reported by the kids

5000 each

[tilt]

Pub 15 says: "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 proprietor or partnership in which each partner is a parent of the child."

The older child is subject to both. I don't see how this child would not be an employee vs. IC.

[KEYWEST_RICKS]

i think that the age cut off for not having to collect social security on your child is 18 or 19... i know it is not twenty. i believe it lists the age in the circular e

jeff

[RitaB]

Have a client that has a sched c business. Paid 3 children for assistance in the business and did not issue W-2 or 1099's and took no social security out. I know that a parent can pay their child and avoid SS tax on the income to them, as well as take the deduction on their sched C.

BUT.. one child is 20 years old and in college (still a dependent) the other 2 are minors.

1. Can i take the deduction for the money paid to the 20 year old and can the 20 year old still avoid SS?

2. does it have to be W-2 wages or can I show it as Other income on the 1040? Or do I have to issue W-2's to the 3 kids?

Joel

EDITED

Talk to the parents, but I would take the deduction for the minors and prepare W-2's and the 941 or 944. Course they may not even have an EIN, either. So, you'll have to get that...

I might even take the deduction for the 20 year old; he'll be self-employed, but it might (probably will) save the family $ in the long run.

On the other hand, it is April 15, the client may just say forget it this year, don't take the deductions, do it right next year. Charge lots.

[jklcpa]

Definitely talk to the parents. With this level of earnings, they may have done this so they could make IRA contributions for the kids.

[joelgilb]

Talk to the parents, but I would take the deduction for the minors and prepare W-2's and the 941 or 944. Course they may not even have an EIN, either. So, you'll have to get that...

I might even take the deduction for the 20 year old; he'll be self-employed, but it might (probably will) save the family $ in the long run.

On the other hand, it is April 15, the client may just say forget it this year, don't take the deductions, do it right next year. Charge lots.

Like the idea of charging lots!!!

After reading all the posts I also found Circular E and page 9 provides the same answers. No social security for those under 18, but all older than 18 must pay SS.

Still get to offset up to $5k with the standard deduction, so reduces inc tax and provides a lower bracket than mom and dad for everything else on the oldest. Last but not least I need to do 941's and W-2's, 3 more tax returns (even though they are kids), so ADDITIONAL WORK and I CAN CHARGE LOTS!

And everyone, even the oldest although subject to Soc Sec does help mom and dad save money.

Also, note they are not going to do IRA's. Was never their intention. Was intended to find a way to help fund college and kids do help, so it works on several levels. Although they might consider the IRA's in the future.

Thx Much

Joel