The whole thing is very confusing.
This article from H&R says that the minor doesn't need tax withholding if there's no income tax liability for the last year and no expected liability for the current year:
https://www.hrblock.com/tax-center/income/wages/summer-job-exempt-from-federal-withholding/
Here's an article from a Tax firm that says one doesn't need to file a W-2 if the minor's income doesn't have any tax withholdings or tax payments: https://www.oberlanderandco.com/insights/kids-on-payroll
The IRS allows any sole proprietorship or partnership (LLC) that is wholly owned by a child’s parents to pay wages to children under age 18 without having to withhold the payroll taxes and list it as “outside labor” as another expense. NOT Payroll. You do not have to issue a W-2. This is because there are no withholdings, and the penalty for not filing a W-2 is based on the ‘withholdings.’
If you issue a W-2 for your child, there are no FICA, FUTA, or SUTA due or withheld. We recommend a W-2 is if you plan to have your child contribute to a Roth IRA. In those instances, we want the IRS computer to match up to the kid’s contribution to the IRA with their earned income.
Here's another recent article which has this table which seems to also suggest the same that no W-2 is required for a family business LLC paying a minor a wage less with no tax withholding or tax tax liability: https://www.wealthyaccountant.com/2023/07/17/hiring-your-children-and-taxes/
So it no taxes are withheld and since the child can claim exemption from withholding, this would mean no W-2 is required?
Here's an article from TurboTax saying that the minor has earned income less than standard deduction then there's no need to file an income tax return.
https://turbotax.intuit.com/tax-tips/irs-tax-return/does-everyone-need-to-file-an-income-tax-return/...
Georgia DOR website says no tax return required if income is less than standard deduction and there's no federal tax return required: https://dor.georgia.gov/filing-requirements
So if my daughter is getting $5000 from the family business LLC, as I understand she's not subject to Federal or Georgia income and doesn't have any withholding requirement either. So does this mean she doesn't need to file an income tax return even if my LLC issues her a W-2 and she puts that $5000 into a Roth IRA?
Am I correct in understanding that:
1. The Single member family business LLC doesn't need to issue a W-2 to the child if there are no withholdings or taxes because the wages are less than standard deduction ($5,000)?
2. Alternatively, if the business does issue a W-2 and since the wage ($5,000) is below the minimum standard deduction for the state and federal requirements, there's no need to file a tax return even though the child makes a contribution of $5,000 to a Roth IRA? Would this create an issue with the IRS system because it's seeing a W-2 and 5498 but no tax return?
Would love to have some experienced professionals weigh in on this.
