EIN Required when paying minor children

[bella185]

I have a side business that I do not have an EIN for and I've been paying my minor children to help me get it set up.  I'm filing for 2017 on Turbo Tax and it is telling me that I have to have an EIN and not to use my social.  Not sure what to do in this situation?

Thanks,  Rick

[Critter]

Simple ... get an EIN since you need it for the W-2 & W-3 as well as all the payroll tax reports.  They are easy and free :  https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

[bella185]

I’m not paying my kids as W-2, and my concern is for my 2017 tax return that I’m filing now.  Is there a way to use my social as my EIN?

[VolvoGirl]

You enter the payments as Contract Labor Schedule C Line 11 not as employee wages.   

Under Business Expenses, Click Start or Update by Other common business expenses

Contract Labor is the 5th item in list.

You can either enter the total for all of them or enter each name individually.  Only the total goes to schedule C line 11 but it you enter them individually you will have a record and the names will transfer to next year so you won't forget anyone.

[Critter]

YOU REALLY SHOULD BE PAYING YOUR MINOR CHILDREN AS EMPLOYEES !!!!  This saves taxes ... by calling them sub contractors they must now pay SE taxes on the income but if they are employees they escape FICA taxes ...  talk to a local tax pro  or  payroll company to get educated on this matter.  

https://www.marketwatch.com/story/the-new-tax-law-makes-hiring-your-kid-a-better-idea-than-ever-2018...

[Critter]

And you should get an EIN for your business no matter what ... if you get issued 1099-misc forms then you have to give your SS# to strangers on a W-9  and this is a dangerous practice these days.  The EIN is free and easy to get ... get one now. 

[Critter]

If you are filing the 2017 return NOW then you are very late in issuing  a 1099-misc or W-2/3 forms + 940/941 forms.  Either way you need an EIN  and  there will be penalties for the late filings.  Why add SE/FICA taxes to the mix ?   You are missing out on a great tax savings/deduction.     Again, seek local advise on this matter.  

[bella185]

Good info, thank you.  I'm assuming one can't file for an EIN retroactively?  When you reference calling them "Employees" can they be either W-2 or 1099?

[Carl]

I'm assuming one can't file for an EIN retroactively?

You're assuming incorrectly. If the SCH C business has been in existance since 2017, go to the referenced website and get a ***FREE*** EIN now. Takes a whole10 minutes if you're a "hunt & peck" typer.

When you reference calling them "Employees" can they be either W-2 or 1099?

No. Only an employee can be W-2. A contractor is issued a 1099-MISC. 

Either way, your fines for issuing the tax documents late (either W-2 or 1099-MISC) are going to be steep. That's just on the federal taxes. So if your state taxes personal income you can double those fines and penalties. It will make the cost of professional help on this seem like a pittance.  Please seek professional help on this because a local CPA/Tax Professional may be able to reduce the fines, penalties and late fees that you *WILL* be assessed and *WILL* pay, enough to make it worth the comparable pittance you will pay that professional.

While you're at it, might as well have the pro do your 2018 taxes too since you'll be assessed fines, penalties and late fees for issuing those same documents late for the 2018 tax year.

[Critter]

Of course ... the local pro may advise you to NOT report the payment to your kids  unless the kids have already reported the income on their own returns.  The only reason to pay them is to deduct the amount on your Sch C to reduce your taxes by having the children pay the taxes instead.   If they have not reported the income yet then you have the option to NOT deduct the money you gave them even if they worked for it ... consider it a gift or just the cost of  supporting them. 

This way you will just pay the taxes on your return and they don't need to file and you don't need to file late payroll forms or 1099s so you avoid the penalties.   The taxes you pay (depending on how much you paid the kids) may offset the penalties/interest on the late forms.   Just an idea ... need to think both ways on it and a good tax pro should be able to educate you in all the pros & cons.