Wages earned by a child working in a parent-owned sole proprietorship or a partnership in which both parents are the only partners are exempt from Social Security and Medicare taxes on their earnings. Payment for the services of a child are subject to income tax withholding, regardless of age. Such earnings are subject to income tax, but would be less than the child's standard deduction.
As the employer, completing the Form W-2 is a simple matter:
1. Complete the employer and employee information in boxes (a) through (f).
2. Enter the child's wages in box (1).
3. Enter the child's withholding, if any, in box (2).
4. Boxes (3) through (6) should be left blank.
5. Boxes (7) through (20) would be completed as circumstances dictate, but would, most likely, be left blank.
Assuming the child has no other income and is below the filing threshold, the child has no Form 1040 filing requirement, unless filing to obtain a refund of taxes withheld.
