You make the call

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.