2 kids ages 10 & 14 earning income mowing lawns

[Kaleo808]

*I Live in Hawaii (for law/tax purposes) This is for year 2023.

Both children (ages 10 & 14) are doing lawn work for family members on weekends.  The 14 year old is mowing the lawn with a non self-propelled push mower, and the 10 year old is raking all the cuttings.   I'm keeping a spreadsheet log of all dates/task/duration/breaks/earnings/whose lawn.   

They will not be getting a W2 or a 1099 for the income, as they are being paid in cash by each family member, per job.  Their incomes will be roughly $2400.00 per child, per year.  I want to start investing some of their earnings in a custodial ROTH IRA.  In order for this to be considered "Earned Income", does a tax return NEED to be filed, even if its under $13,850? 

Any advice would be appreciated.  Thank you.

[VolvoGirl · Accepted solution]

Yes that is self employment income and needs to be filed for only $400 or more.   Especially to show earned income to make ROTH IRA contributions. And they need to pay self employment tax on it.

Self Employment tax (Scheduled SE) is automatically generated if a person has $400 or more of net profit from self-employment.  You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

For an IRA contribution.  If you only have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for one-half of your self-employment taxes.  See IRS publication 590 http://www.irs.gov/pub/irs-pdf/p590a.pdf

[Bsch4477]

I misread your post to read that they were getting a W-2 in which case there would be no reporting requirement. Otherwise they would have to report the income as self employed on Sch C and pay self employment tax as others have indicated. 

Technically you don’t have to report that income to fund a Roth but to avoid any letter of inquiry from the IRS it wouldn’t hurt to use one of the many free file programs to file a return anyway 

[xmasbaby0]

Is all of this for 2023?  So they have income in 2023?

They have self-employment income for which they are supposed to file a tax return and pay self-employment tax for Social Security and Medicare.  And,....you have to show income earned from working in order to put money into a retirement account.

https://ttlc.intuit.com/community/self-employed/help/how-do-i-report-income-from-self-employment/00/...

MY DEPENDENT HAD A JOB

If your dependent has a W-2 for his after-school job, summer job, etc. you do not include the information on your own return. You can still claim your child as a dependent on your own return.  He/she can file his own return for a refund of some of his withheld wages (he won’t get back anything for Social Security or Medicare), but MUST indicate on it that he can be claimed as a dependent on someone else’s return.  (Supervise this closely or prepare it for him!)

If your dependent’s earnings were over $400 and were reported on a 1099Misc or 1099NEC then he must file a return and pay self-employment tax for Social Security and Medicare.

You might also want to use free software from the IRS Free File versions:

https://apps.irs.gov/app/freeFile/

https://ttlc.intuit.com/community/self-employed/help/what-is-the-self-employment-tax/00/25922

https://ttlc.intuit.com/questions/2902389-why-am-i-paying-self-employment-tax

https://ttlc.intuit.com/questions/1901340-where-do-i-enter-schedule-c

https://ttlc.intuit.com/questions/3398950-what-self-employed-expenses-can-i-deduct

[xmasbaby0]

If your self-employment income was only from cash, personal checks, credit card payments, or cryptocurrency 

Type Schedule C in the Search box and then select the Jump to link. This will take you to where you can enter any cash, personal checks, credit card payments, or cryptocurrency (Form 1099-K) related to your self-employment. You may first be asked some general questions about your business. After you answer them, you’ll be taken to the Let's get income for (your line of work) screen where you can enter this income as Additional Income.

[Kaleo808]

Thank you, that's very helpful.  @xmasbaby0 

[Kaleo808]

@VolvoGirl  Thank You.  That was a very helpful response.  Aloha.

[bdklbfran]

I thought that there was something where babysitting and lawn mowing can be considered extra income and not Business income?  For a child that has misc jobs around the neighborhood.

[LeticiaF1]

No they are both considered self employment.  According to the IRS normally you are self employed if you are in business for yourself, there is really no age limit on this.  Anyone who is self employed is required to file if their income was $400 or more during the year.  For more information visit Self-employed individuals tax center.

@bdklbfran