How to handle my child who worked for me in my small business?

[Anonymous]

I have a very small business which is a single-member LLC. It's a blog and brought in about $5k in income in 2021.

I hired my 11-year-old daughter to model for photos I needed to use in various blog posts throughout the year. Over the course of the year, her earned income totaled $400 from 8 photo sessions at $50 per session. She had no other income from any other sources. Probably an aside, but all the money was paid to her from the business, and then she invested that money in a custodial Roth IRA.

Here are my questions:

• Is she an employee or an independent contractor? What's a smarter move if there's a choice?
• What do I need to do to ensure everything is done correctly?
• Do I need to issue her a W2 or 1099? If that's past due (from what I was told), what happens?
• Will she need to file a return this year? I've heard that it's probably good to do this regardless to ensure something is in place to record
• We didn't do this in 2021, but does she need to be making estimated quarterly tax payments in the future if she earns more income in 2022?
• Assuming her income is small again like this in 2022, what are my obligations and hers as far as other taxes (Social Security, Medicare, FICA, etc.) 

Sorry for all the questions, but this is something completely new to me.

Thanks for your help!

[ThomasM125 · Accepted solution]

She would likely be considered a subcontractor in the eyes of the IRS due to the nature of the job. You don't need to issue her a form 1099 since it is not required since she earned under $600. She should file a tax return since she earned $400 or more. You would report the income as income from self-employment. She doesn't need to make estimated tax payments if her total tax is less then $1,000 for the year. If you treat her as a subcontractor, then all you need to do is file a personal income tax return, as she will pay self-employment tax (social security) with her personal tax return form 1040.

@Anonymous 

[Edited 2/3/22 @ 5:34 PM PST]

[Anonymous]

Wow, this is great information and makes me feel so much better about everything.

It also gives me some good guidelines to keep in the "simple" zone for 2022. 🙂 I'll likely ensure that she stays under that $600 mark (assuming that doesn't change) for this year.

Thank you so much, @ThomasM125 !! You made my evening!