Discussion Archives:Form 1099-MISC for children

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Discussion Forum Index --> Tax Questions --> Form 1099-MISC for children


Rosalydia (talk|edits) said:

8 January 2007
A real estate pro (sole proprietorship) has 2 children. During 2006, she paid each of them $500 for helping with her business. Now, she wants to file a Form 1099-MISC for each one so that she can take a deduction on Schedule C. She has no employees and files no payroll tax returns.

I think that she would probably be better off just forgetting about it. The kids would have to file tax returns and pay SE tax. What do you advise your clients in this situation? Thank you for your answers.

Uncle Sam (talk|edits) said:

8 January 2007
Minor children working for parents are exempt from FICA and Medicare taxes if reported as wages on a W-2.

Why have them pay the FICA and Medicare tax by reporting it on a 1099? Reporting on a W-2 provides an opportunity also to put those wages into an IRA for the child. The parent can still take a Schedule C deduction for those wages.

Rosalydia (talk|edits) said:

8 January 2007
Only one child is a minor. Because she has no other employees, she does not have an EIN or an account set up with the state. Should I tell her to set it up today?

What about worker's comp insurance that would have to be paid?

Rosalydia (talk|edits) said:

8 January 2007
Even though she does not meet the filing threshold of $600 for Form 1099-MISC, I would like your comments on how to handle this. I will prepare the tax returns for the children, so the $500 would be reported, even if no Form 1099-MISC is filed.

Solomon (talk|edits) said:

8 January 2007
I would forget it.

Death&Taxes (talk|edits) said:

8 January 2007
The SE Tax limit is $400, that is why they should either be given W-2 forms where they would be FICA exempt. Paying 15.3% on $1000 dilutes the saving from both SE and Income tax to only Income Tax.

Deback (talk|edits) said:

January 8, 2007
If the payments to each child were $400 each, she could deduct $800 on her Sch C, and each child would report $400 on their own Sch C (only if they have other income and are required to file returns) and would pay no SE tax.

DZCPA (talk|edits) said:

8 January 2007
Same as Deback but deduct $1000 and find >$100 in related deductions for each kid. You are going to file a schedule C anyway . Maybe some auto exp, telephone, meals, supplies.

1040man (talk|edits) said:

8 January 2007
Deback says:"each child would report $400 on their own Sch C (only if they have other income and are required to file returns) and would pay no SE tax. WHY in the world would the kids file a Schedule C. Are they self-employed??

JR1 (talk|edits) said:

January 8, 2007
Hold on. I disagree with most of the early posts. Yes, deduct the income on her Sch. C, no requirement to send 1099's at all. And agree that the kids are exempt from FICA. Now, technically, that's supposed to be on a pr filing. I've intentionally violated that rule many times when the kids were the only ones working. Entered it on their line 21 as Children of Sole Prop Income not subject to SS and never had one come back. No way an IRS person will look you in the eyes and make you file quarterly pr tax returns for your kid alone. You better have proper records to support the payments, so I'm presuming that part. So take what's yours, claim what's theirs, and yes, stick it an IRA or Roth.

Deback (talk|edits) said:

January 8, 2007
Generally, when a person earns the money by working, I include the income on Sch C and not line 21 of Form 1040, whether he was actually self-employed or should have been an employee. But, in the case where the income is only $400, I believe it would be fine to enter the amount on line 21.


1040man - In this case, we don't know if the children are self-employed or not. But the employer chose to pay them on a 1099 basis, so you could assume that the children worked at their convenience and chose when they wanted to take breaks, etc.

JR1 (talk|edits) said:

January 8, 2007
They're not self employed, tho' and I want to avoid any linking or searching to an SE form, which is why I just use the line 21...

Deback (talk|edits) said:

January 8, 2007
In this case, the owner is treating her children as self-employed, since she has not filed any payroll returns. From the wording of the question, I don't know if the children will contest this or not.

JR1 (talk|edits) said:

January 8, 2007
LOL. Like they have a choice. Deb, don't pick nits. They're employees, just circumventing the PR reporting since they're the owner's kids. Sch. C isn't where you'd want to report them since IRS would then expect SE taxes. A child is hardly capable of being self employed until they get into the older teens, and if they are indeed self employed, they'd be subject to SE taxes, which is clearly not the intent or purpose of the taxpayer, who planned on them qualifying for the tax free FICA for minor children...C'mon.

Michaelstar (talk|edits) said:

8 January 2007
I agree with JR1. These children are not self employed or IC's based on the implications of the original post. They are employees if they are working for there Mom and are really children. How old are they? I would suggest to the t/p to forget about the expense unless they want to do things right and file p/r tax returns. Heck - report it fourth quarter and file the W-2's - not a big deal except the w/c insurance that was not paid on the wages. This is why I usually do not accept r/e agents as clients. At the end of the year, they want to deduct everything under the sun including 100% of the cell phone and the $50k SUV.

Sandysea (talk|edits) said:

8 January 2007
WHY OH WHY issue a 1099-Misc if it is under the 600.00 threshold? You can still take the deduction for the casual labor, whatever without filing a 1099 if the amounts paid for the year were less than 600.00 per person....what am I missing here?

Deback (talk|edits) said:

January 8, 2007
JR1 - I understand what you're saying, but we don't know the age of the children in question. I started working when I was 14 as a W-2 employee (and at age 12 as a babysitter). Minors (children under the age of 19) are certainly qualified to work and be self-employed. If the income earned by these children is under $433 each, they would not have to pay any SE tax, so what's the big deal about using Sch C to report their income? And if they had no other income, they would not be required to file tax returns. And, as Sandy said, if the children's income was under $600 each, Forms 1099-Misc don't have to be filed. I still agree with Deback and DZ's original responses.

Michaelstar (talk|edits) said:

8 January 2007
Sandysea - your very correct about the $600 limit and no 1099's need to be filed. I just believe that they are not IC's so even if the $$ was more than $600 - Form 1099's is not proper method of reporting those payments if these are really "children". Unless, they are older adult children who might say have their own business and helped Mom build a web page or something.

Sandysea (talk|edits) said:

8 January 2007
I agree Michael. The poster though seemed to indicate that he/she wanted to 1099 them so as not to p/u the amounts as p/r. I think she should let it fly and not do the p/r; maybe next year, put the kids on p/r since no fica will be withheld, but certainly why issue a 1099 if it is not required?

Dogman (talk|edits) said:

2 April 2007
OK... I think I can complicate this discussion a whole lot more than has been discussed above.

History - I entered into piece work contracts with my two step children (recall this for later) ages 14 & 17 in 2006 (the 14 year old turned 15 in June and the 17 year old turned 18 in September 2006). Both completed their contracts (the 17 year old before he was 18 and did not renew for more). I have documentation of the work completed but payment was in the form of loans early in 2006 for specific wants (New transmission and other vehicle work for the 17 year old and Cheerleading Tumbling lessons, trips, etc. for the 14 year old who is also contracting for car down payment). In 2007 I issued the children 1099misc. forms for the payments received (4,000 for the 14 year old and 3,000 for the 17 year old). I have already posed the following to several pros and CPAs and have gotten varying answers. This is a complicated situation that I need good discussion on.

Facts:

17 year old received 3,000.00 & 1099misc. - 14 year old received 4,000.00 & 1099misc. - 17 year old is my stepson - 14 year old is my stepdaughter - 17 year old stepson lives with us and we provide well over 1/2 of support - 14 year old stepdaughter lives with us and we provide well over 1/2 of support - We claim 14 year old on our taxes per divorce decree - Father claims 17 year old on his taxes per divorce decree - I am a single member LLC filing as sole proprietor on Schedule C

The Questions - - -

When the returns for the children are filed, do they need to file a Schedule C and pay SE Taxes on this income even though they did the work for my LLC?

Since they are my stepchildren and not by blood do they even qualify as children employed by a Parent's single member LLC? Do I even have the right to not pay Employment Taxes on the now 15 year old in the future even as a regular employee reported on form 941?

What are my options to best straighten this mess out... for 2006 and into the future? I really could use real and thoughtful answers and solutions to this... I told you it was a complicated mess and I have already received several differing opinions, but to the plus side, it is a real true challenge for a discussion.

Dogman (talk|edits) said:

3 April 2007
I really would appreciate it if someone gave the above a try.... or two

Wwtaxes (talk|edits) said:

3 April 2007
Dogman,

From my experience, this is not the time of year to expect to get a discussion going. If you don't get one going here, try again after 4/17. However, sometimes if I post a response, someone will be willing to point out the error of my ways, so I'll take a stab at part of this anyway. Assuming stepchildren qualify as children (of which I'm not sure), I don't think you can avoid the SE tax bc you issued a 1099 instead of a W2. I find a lot of clients shy away from paying wages, but in the case of children, it can be very beneficial, and the only difference for the person doing the filing is withholding and paying the various taxes. I actually prefer filing W2's bc I can do it online, but I have to go buy 1099's, type them, and mail them in. There - I'm putting on my armor - let's see what comes in.

Dogman (talk|edits) said:

4 April 2007
I understand this is a bad time of year and that Tax preparers and CPAs are busy, but I did not just ask this here because I wanted free advise. I am an accounting major (non-practicing) from a long time ago and am more than capable of understanding the discussion. I understand, in retrospect, that I should of reported this using 941s and W2s, I did not and I can not change that now. I did not have any employees until late June of 2006 so I did it as contract work merely for convenience sake. I have been to Three CPAs on this, I had to pay two of them, all had differing opinions and none appeared certain of their answer and none appeared to have an experience similar to rely on. I came here hoping to reach a broader base of knowledge and experiences and at the very least be refered to some professional who definatively knows how I should handle this. I am a strict by the book person when it comes to Taxes, I only wish to do what I feel comfortable is the legal thing. At the same time I try to avoid being over cautious and paying taxes that I have no obligation to pay. If anyone can shed light or knows where I might go to find out, please reply and let me know.

Dogman (talk|edits) said:

8 April 2007
Since no one here can offer a solution to the below, can you at least offer where I might get an answer that can be relied upon to be accurate? Like I said, I'm not out for free advise.... I'll Pay for solid, experienced advise.


OK... I think I can complicate this discussion a whole lot more than has been discussed above. History - I entered into piece work contracts with my two step children (recall this for later) ages 14 & 17 in 2006 (the 14 year old turned 15 in June and the 17 year old turned 18 in September 2006). Both completed their contracts (the 17 year old before he was 18 and did not renew for more). I have documentation of the work completed but payment was in the form of loans early in 2006 for specific wants (New transmission and other vehicle work for the 17 year old and Cheerleading Tumbling lessons, trips, etc. for the 14 year old who is also contracting for car down payment). In 2007 I issued the children 1099misc. forms for the payments received (4,000 for the 14 year old and 3,000 for the 17 year old). I have already posed the following to several pros and CPAs and have gotten varying answers. This is a complicated situation that I need good discussion on.

Facts:

17 year old received 3,000.00 & 1099misc. - 14 year old received 4,000.00 & 1099misc. - 17 year old is my stepson - 14 year old is my stepdaughter - 17 year old stepson lives with us and we provide well over 1/2 of support - 14 year old stepdaughter lives with us and we provide well over 1/2 of support - We claim 14 year old on our taxes per divorce decree - Father claims 17 year old on his taxes per divorce decree - I am a single member LLC filing as sole proprietor on Schedule C

The Questions - - -

When the returns for the children are filed, do they need to file a Schedule C and pay SE Taxes on this income even though they did the work for my LLC?

Since they are my stepchildren and not by blood do they even qualify as children employed by a Parent's single member LLC? Do I even have the right to not pay Employment Taxes on the now 15 year old in the future even as a regular employee reported on form 941?

What are my options to best straighten this mess out... for 2006 and into the future? I really could use real and thoughtful answers and solutions to this... I told you it was a complicated mess and I have already received several differing opinions, but to the plus side, it is a real true challenge for a discussion.

DZCPA (talk|edits) said:

8 April 2007
They need to file Schedule C forms if they get 1099 income for their self employment income. They need to pay SE tax if they have a profit over $400. Put them on payroll next year. IRS also gives out free advice!

Deback (talk|edits) said:

April 8, 2007
Agree with DZ, except there would be no SE tax if the Sch C profit is under $433. ($432 x .9235 = $399)

Dogman (talk|edits) said:

14 April 2007
Just for the record and for someone who might be searching this in the future. I asked the IRS and their reply is below...

The Answer To Your Question Is: Thank you for using our service. Since the children were issued 1099-MISC forms as contract workers, they are considered to be self-employed. As such, the same rules apply to them as they would to any self-employed worker. As explained in the Publication 17, Your Federal Income Tax (For Individuals), under who must file, the following excerpt applies. You must file a return if your gross income is at least as much as the filing requirement amount for your filing status and age (shown in Table 1-1 or 1-2). Also, you must file Form 1040, Schedule C or C-EZ and Schedule SE (Form 1040), Self-Employment Tax, if your net earnings from self-employment were $400 or more. There are no exceptions to the self-employment tax for the children, because of their age. For 2007 you can treat the child/children as employees. A child is a qualifying child, for the child employed by a parent, if the child is your son, daughter, stepchild or eligible foster child. I hope this information is helpful. Reference: Publication 15, Circular E Employers Tax Guide;

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