Payment between family members

[danielle-51]

We own the land, and have a relative who does extensive work on the land.

We do not have to pay anything, but by choice, we do.

The land is family owned, not an investment property or anything like that.

By choice this relative does the work, and by our own choice, we want to pay him for his work.

So when payment is made, do these "payments" count as income for this person, or is it considered a gift?

I felt sure it would have to be reported, since we are doing it regularly, but I want to know for sure.

[DianeW777]

It depends.  You are allowed to give a gift to a relative whenever you want.  The 2023 gift tax limit was $17,000. For married couples, the limit was $17,000 each, for a total of $34,000.  This means each spouse can give a gift to one person, it's called gift splitting. Below these amounts a gift tax return is not required.

• Form 709 and Instructions

On the other hand if you are a business and choose to pay your relative for the services performed on your land this could be considered as self employment income since they independently work by their own choice.

• What is a 1099-NEC?
  • A business that makes payments for nonemployee compensation payment totaling $600 or more to a nonemployee typically needs to file Form 1099-NEC. Also, any business that withholds federal income tax from nonemployee compensation, regardless of the amount of payment, should file a 1099-NEC.