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Tmdman
New Member

Should I pay my parents as a 1099 or W2?

I want to hire my parents to help me out doing some property management. 

 

Is is better to make them an employee? Or should I just pay them as independent contractors?

 

I was planning to pay them 6k each a year to help me out.

 

Which way gives the best tax benefit? 

 

 

2 Replies
Critter-3
Level 15

Should I pay my parents as a 1099 or W2?

That will depend on if they are treated as an employee or a contractor ... you must follow the IRS rules on this matter :  https://www.irs.gov/taxtopics/tc762

Mike9241
Level 15

Should I pay my parents as a 1099 or W2?

you can make the employee/independent contractor status on your own.  if you are unsure you can let the IRS make the determination by filing form SS-8

https://www.irs.gov/pub/irs-pdf/fss8.pdf 

Send the completed and signed Form SS-8 to:

Internal Revenue Service
Form SS-8 Determinations
P.O. Box 630
Stop 631
Holtsville, NY 11742-0630

 

it's important to get it right.  you s an employer would need to get an EIN, file quarterly payroll tax returns, year-end W-2, pay in the payroll taxes on a timely basis, possibly need to get worker's compensation insurance. if your state taxes wages you would also have state payroll tax filing requirements. failure to classify them properly as employees can result in the IRS and state imposing significant penalties

 

if they're independent contractors things are much simpler. technically you don't need an EIN. you can use your SSN. at year-end you file 1096/1099-NEC. there are no payroll tax returns or withholding required.

 

in either case, make sure the amount paid to them is reasonable based on the services they actually perform. if the payment is excessive and the IRS catches it, they are still taxed on what you paid them but you lose the deduction for an excessive amount. then the IRS and state (if you have a state income tax)  will bill you for additional taxes, penalties and interest.

 

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