@Hal_Al wrote:
You should issue them W-2, not 1099-NEC. That way, none of it is subject to Self employment or FICA tax.
Furthermore, then, they do not file a tax return because the filing threshold for a dependent, with earned income, from wages, is $12,400 They can still be your dependent.
You must issue her a w-2. If she is under 18, you do not have to withhold FICA. You should not give her a 1099-NEC.
Reference: https://www.irs.gov/businesses/small-businesses-self-employed/family-help
distributions shown on a 1099-DIV,
(1) You are almost certainly right that the children are employees, not Independent Contractors. The determination is a matter of fact, not choice. And having your children work for you would almost certainly be employees.
https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-o...
(2) However, their wages ARE subject to payroll taxes. The exemption for payroll taxes do not apply in this case because they are working for a corporation (the OP said it is an S-corp), not the parent.
