Question: Troy, a self-employed landscaper, files a Schedule C every year. He has one daughter, Sally, who is sixteen and works for him during the summer helping with various landscaping projects. In the past, Troy has issued Sally a W-2 for her work and has been told that her wages are exempt from FICA and FUTA.
This year, Troy converted to an S corporation; this was the only business change. He plans to continue hiring his daughter during the summer and paying her wages, reportable on a W-2 like he has always done. Can he continue paying his daughter wages, exempt from FICA and FUTA?
Answer: No. Children employed by a parent-owned business are exempt from FICA until age 18 and exempt from FUTA until age 21. This exemption applies only to Schedule C, sole proprietorships. It does not apply to a child employed by an incorporated business owned by the parent or by a partnership that has partners who are not parents of the child.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.