My 14 year old child earns $4,800 income for doing work for our family business. Taxes are not paid & this income serves as an expense for my business. How fill out W2?

[charlasteele]

My understanding is that taxes are not required to be paid and my business uses this income as an expense if less than $6,800 I believe.  What boxes are filled out on the dependent's W2 and where do I add this for the business Schedule C?

[MichaelMc · Accepted solution]

Wages earned by a child working in a parent-owned sole proprietorship or a partnership in which both parents are the only partners are exempt from Social Security and Medicare taxes on their earnings. Payment for the services of a child are subject to income tax withholding, regardless of age. Such earnings are subject to income tax, but would be less than the child's standard deduction.

As the employer, completing the Form W-2 is a simple matter:

1. Complete the employer and employee information in boxes (a) through (f).

2. Enter the child's wages in box (1).

3. Enter the child's withholding, if any, in box (2).

4. Boxes (3) through (6) should be left blank.

5. Boxes (7) through (20) would be completed as circumstances dictate, but would, most likely, be left blank.

Assuming the child has no other income and is below the filing threshold, the child has no Form 1040 filing requirement, unless filing to obtain a refund of taxes withheld.

[MelissaVoicer]

What about "state wages?" Is that the same as box 1? 

Also, Turbo Tax is not letting me leave all the withholding stuff blank. It says "unable to reconcile" after I enter the wages and nothing else on the w-2.

[DavidS127]

Yes, the state wages box would be same as box 1, for the W-2 you file for the child. 

More information about the issue you are having with the "unable to reconcile" message may help resolve that issue.  For example, are you preparing a W-2 through TurboTax, and if so which TurboTax product are you using?

@MelissaVoicer

[MelissaVoicer]

Hi, thanks, I think I have figured most of it out... Since my kids are under 18, and I am a sole proprietor, versus a corporation, I do not need to withhold Medicare or Social Security, therefore their "medicare wages" and "SS wages" are "zero" I also THINK I have confirmed with the woman who answered at the Social Security office where I file these w-2s, that I do not need to get a "state identification number" and can leave that blank. HOWEVER, since Turbo Tax is listing it being blank as an error on the return, I am going to call my KY State Department of Revenue about getting one (called a CBI here). I just am afraid that that is going to make them say I need to jump through other hoops that don't apply to me...

[DavidS127]

Because you did not have state income tax withholding for the wages paid to your child, you leave the state identification number field blank for the W-2 you actually file with the Social Security Administration.  Then, for purposes of the W-2 entry into TurboTax only, enter any number in the state identification number field for that TurboTax will accept.  For example, use the same Employer Identification Number used in box b, with additional zeros added to the end (if needed).

@MelissaVoicer