Where to enter salary paid to kids?

[stech]

I know I can pay my kids reasonable salary for my business as tax free. Where do I enter it? On Sch c under Direct Labor? 

do kids need to file 1099 since it’s > $600?

[DoninGA]

If the children were not employees then you enter the amount paid to them under Contract Labor on the Schedule C.

If they had income of $400 or more then they are required to file a tax return to report their self-employed income and pay any SE taxes on their net income.

[stech]

So kids file their return even if under 18? Yes they had $5000 income 

[VolvoGirl]

Yes.  Be sure on their returns they check the box that asks if they can be claimed on someone else's return.  The will have to file Schedule C to report their 1099NEC income and pay self employment tax on it.  How old are they?  

Online is only good for 1 return per account.  But you can use the same email address for 5 accounts.   How to start another return in the Online version

https://ttlc.intuit.com/community/using-turbotax/help/how-do-i-start-another-return-in-turbotax-onli...

Or go to the IRS Free File programs

Free File: Do your Federal Taxes for Free | Internal Revenue Service

The Desktop CD/Download program can do unlimited returns and efile 5.

[stech]

kids are 12 & 10 yrs old. So they pay SE taxes. I thought I read kids do not pay any taxes like FUTA, SS tax etc 

will I be saving $$ by paying kids? I wasn’t expecting to file separate returns. Seems like a lot of work 

[rjs]

It's not clear whether you are paying your kids as employees or as contractors.

Since you are reporting your business on Schedule C, I assume it's a sole proprietorship. If so, and the kids are employees, you do not have to withhold Social Security and Medicare tax if they are under 18. See Children employed by their parents on the IRS web site. You give them a W-2 at the end of the year. If the $5,000 of wages on a W-2 is their only income for the year, they would not have to file tax returns or pay any income tax.

If they are contractors, you have to give them a 1099-NEC at the end of the year. Since they were paid more than $400 they would have to file tax returns and pay self-employment tax, the same as if they worked for someone other than a parent. But they would not have to pay any income tax.

On your Schedule C you report payment to employees as wages. You report payment to contractors as contract labor.

[stech]

I think they maybe employees. Since I have not been withhold any taxes because they are kids, do I file their w2 forms or 940 forms at year end? Can I do that for 2022 or will they be contractors since I missed deadline?

also, do kids have to be my own kids or can it be my nephew? 

Thank you!

[Mike9241]

your nephew does not qualify the Social Security/medicare exemption since he is not your child. To classify your children as independent contractors one year and employees the next may create issues unless something changed substantially.   for example, working for others in the prior year but working solely for your business in the current year.  seek professional advice. 

. 

[stech]

K. forget nephew part. I will only use my kids

 Can I still treat them as employees for 2022, & 2023? Even though no filing as been done? (940 forms or tax withholding) just paid them check 

[stech]

They are employees. Do I need to do any reporting for them at year end or monthly/quarterly? Like issue them W-2? even if no taxes were withheld? 

[rjs]

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@stech wrote:

They are employees. Do I need to do any reporting for them at year end or monthly/quarterly? Like issue them W-2? even if no taxes were withheld? 

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Yes, you have to issue W-2s for them, and file the W-2s and Form W-3 with the Social Security Administration. The IRS instructions for Form W-2 say the following.

"Complete and file Form W-2 for each employee for whom any of the following applies (even if the employee is related to you). . . .
• You paid $600 or more in wages even if you did not withhold any income, social security, or Medicare tax."

[stech]

I didn’t do all that for 2022. So I pay penalties for late filing? Is it worth treating kids as employee for 2022?

thansk 

[rjs]

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@stech wrote:

Is it worth treating kids as employee for 2022?

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The determination of whether they are contractors or employees is not a matter of what you choose. There are rules for making the determination. See the following on the IRS web site.

Topic No. 762, Independent Contractor vs. Employee

Independent Contractor (Self-Employed) or Employee?

[stech]

They are employee

what should I do now. Since I didn’t do any reporting (w2,w3 etc)

[rjs]

You're getting beyond the scope of my expertise. My guess is that you file the W-2s late. Maybe someone else will chime in with another suggestion.

You should probably consult a local tax professional who handles small businesses for guidance in making sure that your business meets all its tax obligations.