If I pay my child wages for working for family business do I have to efile the w2

[elonda4u]

I did not withhold taxes I paid one child who is 17 $6,000 and another who is 10 $3,000 do I have to efile a w2 if so did I miss the deadline I read that if it’s done electronically I can file by 4/2 help please!

[PaulaM · Accepted solution]

You must issue the W-2's. Children under 18 do not need to have social security and medicare taxes withheld. Even though they won't owe any taxes, a W-2 still has to be issued to them.

If you have already started your schedule C business entries,you should see a question that asks if you paid any employees under the business profile. There will also be a link to create and file the W-2's with TurboTax Quick Employer Forms or you can use the link below.

If you haven't set up the business yet, the question will be asked as you are setting it up.

File the forms as soon as you can as the deadline was 1/31/18. The longer you wait, the greater the penalties can be.

Quick Employer Forms

https://www.irs.gov/businesses/small-businesses-self-employed/family-help

[lrlee111]

SS and medicare is not deducted, but should the federal Income tax be withheld? 

[Cynthiad66]

When you paid your child, you should have withheld and remitted income taxes. Depending on how much your child earned during the year, they might be able to get an income tax refund once they file their return.  If you own a sole proprietorship or partnership where both owners are parents of the child, the child is not subject to Social Security and Medicare taxes until age 18. You do not need to pay the employer contribution for your children on payroll. 

However, if you own a corporation or partnership that has nonparent partners, the child is subject to Social Security and Medicare taxes. You must also pay the employer contribution.  No matter your business structure, if your child is 18 or older, you must withhold Social Security and Medicare taxes.  @lrlee111

[Anonymous]

I have a clarification here. As I understand if the parent sole proprietorship pays the child under 18 less than the amount for child earned income tax (a little over 12k) then one doesn’t need to witholding any tax (federal or FICA or FUTA). 
1. I understand that there no requirement to issue a W-2 in such a circumstance unless you need one for reconciliation with say a contribution to a Roth IRA (https://markjkohler.com/how-to-pay-your-kids-in-your-business/)

2. Does this also apply to states taxes / SUTA (Georgia)?

3. Does one need to file a 940/941 and corresponding states reports (G-7 and DOL-4 for GA) even if there are no witholding?

[arcane1]

Same question - but for NY state

[BrittanyS]

The IRS states, "payments for the services of a child under age 18 aren't subject to Social Security and Medicare taxes if the business is a sole proprietorship or a partnership in which each partner is a parent of the child.  Payments to a child under age 21 aren't subject to FUTA.  Payments are subject to income tax withholdings, regardless of the child's age."

A child who makes less than $12,950 will not owe taxes and is not required to file a tax return.  However, if the income exceeds $12,950, income taxes should be withheld, and a return should be filed.  

The filing requirements change per state.  New York requires you to file a return if you are required to file a Federal Return or your Adjusted Gross Income was more than $3,100 for dependents or single filers.  

You will file the 940/941 if you withhold; for taxes.  The breakdown for the 940-941 is as follows:

• File Form 940 by January 31 of each year if federal unemployment taxes are withheld
• File Form 941 depending on the IRS schedule assigned (monthly, quarterly, or yearly) when income, Medicare, and Social Security taxes are withheld.

For more information, see the links below:

IRS Treatment for Child Employed By Parent

What Income Does a Minor Have to File an Income Tax Return

New York Filing Requirements

@arcane1 

[mine6m]

What about single member LLC companies? Are the children subject to taxes? Also, how would the 941 get filled up if there are regular nonfamily employees and children employees in the small business? Thats if the children are tax free

[Critter-3]

What about single member LLC companies?  Immaterial ... you have employees you must file the appropriate payroll tax forms timely.

Are the children subject to taxes?  Read the other answers to this post ... you must file the W-2 even if the child is not subject to FICA or withholdings.

Also, how would the 941 get filled up if there are regular nonfamily employees and children employees in the small business?   If you already are filing payroll tax reports for other employees then you will just add the child as another employee... nothing is different on the payroll tax forms.  Read the form instructions  or seek help from a local payroll company to get educated if needed.  

[Anonymous]

Okay so this is now confusing because someone else on a another topic mentioned that W-2's are not required if there are no tax withholdings. So if my minor daughter is paid $3000 for services she renders to a family business (Single member LLC), then she isn't subject to any FICA/FUTA/income taxes at the federal level and no SUTA/incomes  tax at the state level (Georgia). So in this case there's no withholding either. All taxes are 0, is there still a W-2 required to be issued here (the business has no other w-2 employees)? If one did not issue a W-2 what's the penalty or solution?

My understanding is that since there are no taxes paid by the minor or employer at all there's no W-2 required, the only reason to issue a W-2 would be if the child wants to make a contribution to a IRA or Roth IRA in which case the IRS system would look for earned income (W-2) to match the form 5498 that will be issued to the minor.

And on this related topic if one does issue a W-2 to the minor, would I need to file a separate tax return for the minor or is there a way to report it the minor's W-2 (again no taxable income) as part of my tax returns. Also, if  I need to file a separate tax return for her (with no taxable income but still have to report the 5498), can I claim her as a dependent on my tax returns?

[Critter-3]

Read the instructions for the W-2/3  and form 941 for the answer you seek. 

[Anonymous]

The whole thing is very confusing.

This article from H&R says that the minor doesn't need tax withholding if there's no income tax liability for the last year and no expected liability for the current year:

https://www.hrblock.com/tax-center/income/wages/summer-job-exempt-from-federal-withholding/

Here's an article from a Tax firm that says one doesn't need to file a W-2 if the minor's income doesn't have any tax withholdings or tax payments: https://www.oberlanderandco.com/insights/kids-on-payroll

The IRS allows any sole proprietorship or partnership (LLC) that is wholly owned by a child’s parents to pay wages to children under age 18 without having to withhold the payroll taxes and list it as “outside labor” as another expense. NOT Payroll. You do not have to issue a W-2. This is because there are no withholdings, and the penalty for not filing a W-2 is based on the ‘withholdings.’ 
If you issue a W-2 for your child, there are no FICA, FUTA, or SUTA due or withheld. We recommend a W-2 is if you plan to have your child contribute to a Roth IRA. In those instances, we want the IRS computer to match up to the kid’s contribution to the IRA with their earned income. 

Here's another recent article which has this table which seems to also suggest the same that no W-2 is required for a family business LLC paying a minor a wage less with no tax withholding or tax tax liability: https://www.wealthyaccountant.com/2023/07/17/hiring-your-children-and-taxes/

So it no taxes are withheld and since the child can claim exemption from withholding, this would mean no W-2 is required?

Here's an article from TurboTax saying that the minor has earned income less than standard deduction then there's no need to file an income tax return.

https://turbotax.intuit.com/tax-tips/irs-tax-return/does-everyone-need-to-file-an-income-tax-return/...

Georgia DOR website says no tax return required if income is less than standard deduction and there's no federal tax return required: https://dor.georgia.gov/filing-requirements

So if my daughter is getting $5000 from the family business LLC, as I understand she's not subject to Federal or Georgia income and doesn't have any withholding requirement either. So does this mean she doesn't need to file an income tax return even if my LLC issues her a W-2 and she puts that $5000 into a Roth IRA?

Am I correct in understanding that:

1. The Single member family business LLC doesn't need to issue a W-2 to the child if there are no withholdings or taxes because the wages are less than standard deduction ($5,000)?

2. Alternatively, if the business does issue a W-2 and since the wage ($5,000) is below the minimum standard deduction for the state and federal requirements, there's no need to file a tax return even though the child makes a contribution of $5,000 to a Roth IRA? Would this create an issue with the IRS system because it's seeing a W-2 and 5498 but no tax return?

Would love to have some experienced professionals weigh in on this.

[skdh05]

Can you please share what you ended up doing as I'm in a similar situation? Thank you for your help

[Critter-3]

Am I correct in understanding that:

1. The Single member family business LLC doesn't need to issue a W-2 to the child if there are no withholdings or taxes because the wages are less than standard deduction ($5,000)?   A W-2 MUST be issued so the IRS knows she had qualifying income to make the IRA contribution.

2. Alternatively, if the business does issue a W-2 and since the wage ($5,000) is below the minimum standard deduction for the state and federal requirements, there's no need to file a tax return even though the child makes a contribution of $5,000 to a Roth IRA?  This is the very reason for filing the W-2 form... to support the contribution. 

Would this create an issue with the IRS system because it's seeing a W-2 and 5498 but no tax return?   Again if a return is not  this is not an issue ... the W-2 supports the form 5498 contribution.  

[skdh05]

Is it too late to create a w-2 for 2022. Will there be any penalties for a late w-2 filing even though there were no tax withholdings?

Also, we don't have a State ID to put in Box 15 for state requirements, can we leave the state information blank? FYI - this is for VA state.